Internal Audit Function Resources, Readiness and Implementation of Risk Based Internal Audit

Abstract

Risk based internal audit (RBIA) is a crucial approach to enhance effectiveness of internal audit function (IAF). However, its implementation is limited especially in public sector of developing countries including Tanzania. Based on Organizational Readiness Theory (ORT) and Resource Based View (RBV), this study examined the relationship between internal audit function IAF resources
(competence, size) and the implementation of risk based internal audit (RBIA), and the mediation role of internal audit readiness in Tanzanian Public and Statutory Corporations (PSCs). The study used Partial Least Squares-Structural Equation Modelling (PLS-SEM) to analyse cross-sectional survey data collected from chief internal auditors of 174 PSCs. The results indicate that IAF competence (β=0.303, p=0.000) and readiness (β=0.582 p=0.000) are positively related to RBIA implementation. No significant relationship found between IAF size and RBIA implementation (β=0.003, p=0.941). Furthermore, while IAF readiness partially mediates the relationship between IAF competence and RBIA implementation in a complimentary manner (β = 0.311, p=0.000), no mediation effect exists regarding IAF size (β=0.011, p=0.780). The model demonstrates predictive relevance (Q2 = 0.462) and strong explanatory power (R2 = 61.7%). The study extends prior RBIA research by integrating ORT and RBV to explain how the combination of IAF resources and readiness leads to RBIA implementation. It also adds to scanty RBIA literature in public sector especially PSCs. The findings suggest prioritization of IAF readiness for successful RBIA implementation. Future research should consider including other factors such as IAF organizational culture, management and audit committee support which are important internal audit resources as suggested by Resource -Based View.

Keywords: Risk-Based Internal Audit, Organizational Readiness Theory, Public Statutory Corporations, Tanzania