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The influence of the audit committee on the internal audit operations in the system of corporate governance – evidence from Croatia

The activities of internal audit and audit committee in a company are of exceptional importance for a good practice of corporate governance. Performing numerous roles and responsibilities of the audit committee are not possible without the appropriate interactions with the internal audit function. On the other hand, the quality of the internal audit operations in a company is largely determined by the cooperation with the audit committee. This research analyses the influence of the audit committee on the internal audit operations in the sense of achieving numerous roles and tasks of modern internal auditing in the system of corporate governance. On the basis of the conducted empirical research, using questionnaire, a hypothesis was tested as follows: the efficiency of the internal audit function increases through its inclusion in the activities of the audit committee. Before the analysis and discussion on the results of the conducted empirical research on the influence of the audit committee on the improvement of internal audit activity with the application of methods of analysis and synthesis, induction, deduction and comparative method, some relevant aspects are researched regarding the relation between the internal audit function and the audit committee in the system of corporate governance. With the conducted empirical research on a sample of 65 examinees, including internal auditors and members of the audit committee in Croatian companies, the initial hypothesis, that the efficiency of the internal audit function increases through its inclusion in activities of the audit committee, was tested. The performed analysis and tests shows that the inclusion of the internal audit operations in activities of the audit committee influences on the increase of the quality of the internal audit function itself in a company. On the basis of performed tests, it can be concluded that the average opinion of internal auditors and members of the audit committee that cooperation of the internal audit function and the audit committee have a high influence on the increase of the quality of the internal audit operations. Internal auditors and members of the audit committee, in average, believe how communication between the internal audit function and the audit committee in a company is very good. In addition to that, it was confirmed that there are no statistically significant differences in the quality of communication between the internal audit function and the audit committee as it is graded by internal auditors and members of the audit committee, separately. In the context of testing the initial research hypothesis that the efficiency of the internal audit function is increased through its inclusion in activities of the audit committee, it was necessary to confirm if there is a statistically significant correlation between the quality of communication and interaction between the internal audit function and the audit committee and on the other side influence of the cooperation of the internal audit function and the audit committee on the increase of the quality of the internal audit operations. By taking into account the results of the performed tests, it can be concluded that a greater quality of communication and interaction between the internal audit function and the audit committee in a company also means a greater influence of cooperation of the internal audit function and the audit committee for the increase of efficiency of the internal audit operations. The stated correlation is of the same intensity from point of view of internal auditors on the one and members of the audit committee on the other side. Objective of the research was to confirm that the delivery of the risk assessment and related internal audit plan directly to the audit committee have influence on the improvement of the activities of internal auditing in a company. In average, all examinees believe that the cooperation between the internal audit function and the audit committee have relatively equal influence on the quality of the internal audit operations regardless the matter whether the internal audit function directly delivers or doesn’t deliver the risk assessment and related internal audit plan to the audit committee. Along with the stated, the research has the objective to confirm does the use of information obtained from the audit committee during the risk assessment and developing the internal audit plan has improvement of the quality of the internal audit operations. It is concluded that the use of information obtained from the audit committee during the risk assessment and developing the internal audit plan, for which is responsible the internal audit function, has influence on the improvement of the internal audit operations quality. With the objective of confirming the initial research hypothesis, both internal auditors and members of the audit committee were tested regarding the influence of cooperation between the internal audit function and the audit committee on the quality of the internal audit operations regarding communication and dialogue of the internal audit function and the audit committee in a company including adequacy and sufficiency of the auditing resources. The members of the audit committee believe that the continued communication and dialogue of the internal audit function with the audit committee regarding adequacy and sufficiency of auditing resources, required for achieving functions and tasks of internal auditing, have significant influence on the increase of the quality of the internal audit operations while by observing internal auditors point of view indicated that influence on the quality of their work is not significant, or it depends but not significantly on continued communication and dialogue of the internal audit function with the audit committee regarding adequacy and sufficiency of auditing resources. Based on comprehensive conclusions, the research hypothesis can be completely accepted according to which the efficiency of the internal audit operations is increased through an active inclusion of the internal audit function in the activities of the audit committee.

internal audit ; audit committee ; corporate governance

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