INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)  
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025  
Internal Audit Effectiveness and its Determinants: A Conceptual  
Analysis from Selected Private Banks in Mekelle City  
Dr. Boddu Laxman1, Tesfay Haftay Kidanemariam2  
1Assistant Professor, Department of Accounting and Finance, College of Business and Economics,  
Gambella University, Ethiopia  
2Lecturer, Department of Accounting and Finance, College of Business and Economics, Gambella  
University, Ethiopia  
DOI: https://dx.doi.org/10.47772/IJRISS.2025.910000846  
Received: 07 November 2025; Accepted: 14 November 2025; Published: 26 November 2025  
ABSTRACT  
An effective internal audit function is one of the foundations of good governance in banks due to their inherent  
vulnerability to risks and the ever-increasing regulatory compliance demands. This paper presents a conceptual  
and partially empirical investigation of the effectiveness of internal audit in private commercial banks in Mekelle  
City, Ethiopia. Descriptive evidence from a survey of 130 valid responses (out of 134 collected) from internal  
auditors and branch managers supports the conceptual analysis. Drawing on agency, institutional, and  
communication theories, the paper proposes six key determinants: organisational independence, the competence  
of audit staff, the quality of audit work, management support, the audit charter, and the audit committee.  
Management support, auditor competence, and quality of audit work emerged as the most influential  
determinants. It is hoped that this paper will add to the body of knowledge connected to internal audit in  
developing countries.  
Keywords: Internal audit effectiveness, Management support, Auditor competence, Ethiopian banks, Corporate  
governance  
INTRODUCTION  
The role of internal auditing has evolved from a compliance-oriented function to a strategic partner in governance  
and risk management. Internationally, internal auditing is involved in providing assurance on key matters related  
to risk mitigation and governance processes (IIA, 2010). In Ethiopia, despite ongoing financial sector reforms,  
the effectiveness of internal audit remains inconsistent across institutions (Belay, 2007; Mihret & Yismaw, 2007).  
Private commercial banks in Mekelle City play a significant role in the region's economic growth. However,  
their internal audit functions face challenges related to limited staff capacity, insufficient independence, and  
inconsistent management support. These threaten the internal audit departments’ potential to contribute to  
governance and risk management.  
Results of the existing studies in the context of Ethiopia reveal discrepancies. Meseret (2016) and Kebede (2017)  
identified management support and independence as critical factors, whereas Nebiat (2022) found management  
support statistically insignificant. Samuel (2023) highlighted audit charters and independence, while Mihret  
(2020) reported no significant relationship between independence and effectiveness.  
Research GAP: In spite of the increasing number of publications in the field of literature, there is little  
convergence of conceptual and empirical knowledge specifically focused on the situation in the Ethiopian  
commercial banking sector. Most previous studies focused on isolated determinants without integrating  
theoretical and descriptive insights. This paper fills this gap as it combines conceptual knowledge with  
descriptive knowledge to study the determinants of internal audit effectiveness in private banks in Mekelle City.  
Page 10398  
www.rsisinternational.org  
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)  
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025  
Conceptual Framework  
Theoretical Foundations  
Agency Theory: The internal audit function serves as a monitoring mechanism to reduce information asymmetry  
between management (the agents) and shareholders (the principals) (Adams, 1994). The role of agency theory  
in Ethiopian banks is highlighted by the importance of firm independent audits, aligning interests and agency  
costs.  
Institutional Theory: Audit practices are shaped by organisational norms, regulatory frameworks, and external  
pressures. According to global standards, the International Professional Practice Framework (IPPF) can be taken  
as the effectiveness standard for audit practices (Mihret et al., 2010). The apex body, the National Bank of  
Ethiopia, influences the adoption of audit practices in the Ethiopian context.  
Communication Theory: The success of an internal audit is significantly dependent on effective communication  
between auditors and auditees. Effective communication ensures that the results attained from audit activities  
direct improvement efforts (Endaya & Hanefah, 2013). This is particularly relevant in hierarchical contexts like  
Mekelle, where cultural and structural barriers may impede open communication.  
Determinants of Internal Audit Effectiveness  
This section gives a detailed examination of six determining factors, bringing together theoretical perceptions,  
global evidence, and contextual relevance to Ethiopian private banks.  
1. Organisational Independence: It is demarcated as the freedom of the audit function from operational  
intrusion and its direct reporting to the board or audit committee (IIA, 2024). As per the agency theory,  
independence reduces moral hazard and enhances credibility. In Ethiopia, however, executive influence often  
compromises independence (Samuel, 2023). Without it, audit findings do not have any validity.  
2. Competency of Audit Staff: Includes technical knowledge, skills for analysis, and professional certifications  
that are required for assessing the complex nature of risks. According to Alzeban & Gwilliam, 2014, institutional  
theory further emphasizes the relevance of such competencies with the inclusion of global standards that are  
achievable through training. In Mekelle, although 72.3% of the respondents had more than 5 year of experience,  
the limitation towards acquiring international certifications curbs substantial strategic input.  
3. Quality of Audit Work: This encompasses the whole audit cycle of planning, fieldwork, reporting, and  
follow-up done with rigor and in conformance with the IPPF standard (Cohen & Sayag, 2010). Communication  
theory emphasizes that a quality report should be clear, evidence-based, and actionable. However, resource  
constraints in Ethiopian banks often compromise follow-up activities.  
4. Management Support: Demonstrates the commitment of the top executives through budgeting, policy  
implementation, and follow-up on audit recommendations. According to Arena & Azzone (2009), agency theory  
perceives support as indicative of congruence with governance objectives. Despite 62% of respondents reporting  
poor responsiveness, perceived strategic importance remains high (mean 4.52), thus showing a gap between  
intention and practice.  
5. Internal Audit Charter: A formal document that defines the purpose, authority, scope, and reporting lines of  
the audit function (Samuel, 2023). According to institutional theory, charters are used to attain legitimacy and  
standardisation. Although charters exist in the surveyed banks, they are often outdated or misaligned with IPPF  
standards, thereby weakening enforcement.  
6. Audit Committee: This is an independent oversight body responsible for appointing auditors, reviewing  
reports, and ensuring follow-up (Wondwosen, 2019). According to communication theory, the accountability of  
the audit committee is to enhance dialogue between the auditors and the board. However, 55% of respondents  
reported that audit committees are subordinate to management, limiting their effectiveness.  
Page 10399  
www.rsisinternational.org  
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)  
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025  
These determinants are interdependent; improvement in one reinforces others. For example, independence  
doesn't work without a good charter and committee, while direct influences on audit quality include competence.  
Approach holistically for sustainable improvement:  
Figure 1: Theoretical Framework of Internal Audit Effectiveness  
Descriptive Survey Insights  
A total of 134 respondents from five private banks, namely Lion International Bank, Wegagen Bank, Dashen  
Bank, Bank ofAbyssinia, and Awash Bank, were surveyed. After removal of 4 incomplete responses, the number  
of valid responses was 130 (61 Internal auditors, 69 Branch managers). A 5-point Likert scale was used in this  
survey.  
Table 1: Respondent Demographics (n = 130)  
Category  
Gender  
Sub-Category  
Male  
Frequency  
%
Cumulative %  
70.8  
92  
38  
40  
52  
24  
14  
62  
68  
71  
70.8  
29.2  
30.8  
40.0  
18.5  
10.8  
47.7  
52.3  
54.6  
Female  
100.0  
30.8  
26–30  
Age  
31–35  
70.8  
36–40  
89.2  
Above 40  
100.0  
47.7  
Bachelor’s Degree  
Master’s Degree  
Accounting & Finance  
Education  
100.0  
54.6  
Field of Study  
Page 10400  
www.rsisinternational.org  
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)  
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025  
Management  
20  
3
15.4  
2.3  
70.0  
72.3  
83.8  
86.9  
100.0  
11.5  
27.7  
65.4  
100.0  
Accounting & Auditing  
Business Administration  
Marketing  
15  
4
11.5  
3.1  
Economics  
17  
15  
21  
49  
45  
13.1  
11.5  
16.2  
37.7  
34.6  
≤2 years  
Experience  
>2 to <5 years  
>5 to <10 years  
≥10 years  
Source: Authors’ survey (2025)  
Reported Challenges:  
Most of the respondents indicated substantial barriers that may lead to less-than-effective internal audit  
processes. Specifically, 68% highlighted limited the audit activity budget, hence constraining the coverage and  
depth of the assessment of risks. Moreover, 62% have pointed out the absence or insufficiency of management's  
responsiveness to audit recommendations, which also reflects a lack of connection between their findings and  
actual implementations in the operational field. Additionally, 55% said inadequate autonomy of audit  
committees, often due to subordination to executive management, which undermines oversight and execution  
capabilities. These difficulties collectively reflect systemic constraints in the availability of resources,  
organisational culture, and the structure of governance within the surveyed banks.  
Table 2: Perceived Influence of Determinants (n = 130)  
Determinant  
Mean  
4.52  
4.38  
4.25  
3.81  
3.64  
3.41  
SD  
Rank  
Management Support  
Auditor Competence  
Quality of Audit Work  
Organizational Independence  
Audit Committee Effectiveness  
Audit Charter Clarity  
0.61  
0.68  
0.74  
0.89  
0.97  
1.03  
1
2
3
4
5
6
Source: Authors’ survey (2025)  
DISCUSSION  
Independence and Audit Quality  
Organizational independence is the corner pillar of credible auditing, reducing agency conflict through objective  
reporting (Adams, 1994). The average score of 3.81, shows only a moderate level of autonomy within Mekelle  
Page 10401  
www.rsisinternational.org  
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)  
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025  
banks. This is aligned with findings by Mihret, 2020, who recognised that without active committee oversight  
brings limited results. Within an international scenario, Samagaio & Felício (2023) connect independence with  
lower audit failure, but only if paired with organizational commitment.  
Audit quality-mean 4.25 is still a strong factor, which reflects laborious processes despite constraints.  
Communication theory would support this: high-quality reports build trust and can be acted upon. Even though  
Resource scarcity and time pressure, common in a developing context, can weaken follow-up, reducing long-  
term impact.  
Competence and Training  
The competence of auditors mean 4.38 and ranked second among the factors, supported by a highly qualified  
workforce. 52.3% hold Master's degrees, and 72.3% have more than five years of experience. This academic  
strength allows for state-of-the-art risk detection and strategic insight. However, an estimated international  
certification below 15% and barriers to training reported in 74% of cases indicate one critical gap. Alzeban &  
Gwilliam (2014) and Nguyen et al. (2024) point out that continuous professional development is not optional  
but necessary for international alignment. Without such Continuous Professional Development, Ethiopian  
auditors may fall behind in the rapidly digitalising financial sector.  
Management Support  
The mean for management support was 4.52, and it became the top determinant, a factor already noted in  
previous research studies by Meseret (2016), Kebede (2017), and PwC (2023). This all means that perceived  
strategic importance is well recognized by executives for audit as a part of the corporate governance framework.  
Paradoxically, 62% of them reported poor responsiveness to recommendations, which means there is a gap  
between perception and practice. This finding could be explained through the agency theory since, without  
enforcement, such support is symbolic. Closing this gap requires cultural shifts towards accountability.  
Audit Committees and Charters  
Structural weaknesses were reflected in the low audit committee effectiveness, with a mean of 3.64, followed by  
the clarity of the audit charter, which had a mean of 3.41. More than 55% of the respondents' views were that  
committees are subordinate to management, weakening oversight. According to Wondwosen (2019) and Samuel  
(2023), for the committee to be properly constituted, its authority needs to be real in appointing auditors and also  
in enforcing findings. Similarly, even though the audit charter is available, it is often outdated or not in line with  
the standards set by the IPPF, which diminishes its legitimacy. Institutional theory suggests that formal structures  
in the absence of empowerment lead to ceremonial compliance.  
Comparative Insight  
Globally, the Internal Audit function is increasingly being positioned to play strategic advisory roles in using  
data analytics and AI to forecast risks. In developed economies, audit functions contribute to performance  
evaluation and ESG reporting. Ethiopian commercial banks, however, have remained compliance-focused  
because of resource scarcity, political instability, and regulatory gaps challenges shared with Nigeria and Kenya  
(Alzeban & Gwilliam, 2014).  
However, management support and auditor competence arise as global priorities., Strong executive backing is  
also found in the current research to correlate with better outcomes in Asian emerging markets, conducted by  
Nguyen et al. (2024). Ethiopian banks fill that gap through phased digital transformation and regional training  
hubs.  
Moderating Factors Influencing Internal Audit Effectiveness  
Although the six determinants explain much of the variation in perceived effectiveness, their impact is moderated  
by contextual factors prevalent in the Ethiopian banking environment. Resource constraints emerged as the  
most critical moderator: 68% of respondents reported limited budgets, which restrict training, technology  
Page 10402  
www.rsisinternational.org  
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)  
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025  
adoption, and follow-up activities, thereby weakening both competence and audit quality despite high  
educational attainment.  
Organisational culture also plays a significant moderating role. Hierarchical structures and risk-averse attitudes  
reduce management responsiveness (62% cited poor follow-through) even when strategic support is perceived  
as high (mean 4.52). This cultural gap transforms strong perceived support into symbolic rather than substantive  
backing, aligning with agency theory’s emphasis on enforcement mechanisms.  
Finally, the regulatory environment moderates committee and charter effectiveness. While the National Bank  
of Ethiopia mandates audit committees, enforcement remains inconsistent, contributing to the 55% who reported  
insufficient autonomy. These moderating factors, resources, culture, and regulation, interact dynamically with  
the primary determinants, suggesting that reforms must address both direct drivers and these contextual enablers  
for sustainable improvement.  
CONCLUSION  
This study presents an effective conceptual and descriptive analysis of internal audit performance in private  
banks in Mekelle City, based on agency, institutional, and communication theories, with experimental findings  
from 130 respondents. The results indicate that management support, auditor competence, and audit quality were  
the greatest determinants, with mean scores of 4.52, 4.38, and 4.25, respectively. These results align with the rest  
of the international literature but also indicate local sensitivities, specifically weaknesses in organisational  
matters such as independence, committee autonomy, and audit charter congruence among well-educated  
employees. This suggests that there is interdependence between the factors to be used in general reform; small  
piecemeal reform will yield limited results. This study contributes to the limited literature on the role of internal  
auditing in developing African economies, with a replicable framework of application in a similar setting.  
Although this has improved, internal audits in Ethiopia continue to work within their resource limitations,  
ineffective institutional structures, and cultural barriers to accountability. Similarly, the moderate scores of  
organisational independence (3.81) and Audit committee effectiveness (3.64) are indicative of underlying  
systemic issues, which, indeed, should be subject to regulatory action. Additional research should adopt mixed-  
method research designs that adopt inferential statistics to determine causality and sectoral differences. The use  
of digital tools, such as data analysis and AI, has become a viable tool to make audits more responsive and  
strategic. Sealing these gaps can be used to drive internal audits beyond their compliance roles to partners in  
good governance, risk management, and sustainable growth. Exploring the adoption of accessible digital tools  
such as open-source data analytics platforms, mobile-based exception reporting, and AI-supported fraud  
detection models represents a practical pathway for Ethiopian banks to leapfrog traditional limitations and align  
with global best practices.  
Practical Implications  
Emphasize CIA/ACCA certification and ongoing training.  
Empower audit committees with independent authority.  
There is a need to commit resources and act on recommendations by management.  
Policy Implications  
Enforce standards of independence and competence aligned with IPPF.  
Strengthen regulatory oversight of charters and committees.  
Future Research  
Nationally representative mixed-methods studies that use inferential statistics  
Page 10403  
www.rsisinternational.org  
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)  
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025  
Sectoral comparisons (manufacturing, public sector).  
Role of AI, data analytics, and digital tools in audit transformation.  
REFERENCES  
1. Adams, M. B. (1994). Agency theory and the internal audit. Managerial Auditing Journal, 9(8), 8–12.  
2. Alzeban, A., & Gwilliam, D. (2014). Factors affecting internal audit effectiveness: A survey of the Saudi  
public sector. Journal of International Accounting, Auditing and Taxation, 23(2), 74–86.  
3. Arena, M., & Azzone, G. (2009). Identifying organizational drivers of internal audit effectiveness.  
International Journal of Auditing, 13(1), 43–60.  
4. Belay, Z. (2007). Effective implementation of internal audit function to promote good governance in the  
public sector. Ethiopian Civil Service College.  
5. Cohen, A., & Sayag, G. (2010). The effectiveness of internal auditing: An empirical examination.  
Australian Accounting Review, 20(3), 296–307.  
6. Endaya, K. A., & Hanefah, M. M. (2013). Internal audit effectiveness: Atheoretical framework. Research  
Journal of Finance and Accounting, 4(10), 92–102.  
7. Handoyo, S. (2024). Mapping the landscape of internal auditing effectiveness. Cogent Business &  
Management, 11(1), 2289200. https://doi.org/10.1080/23311975.2023.2289200  
8. Kebede, B. (2017). Determinants of internal audit effectiveness: A study on selected private banks in  
Ethiopia. Master’s thesis, St. Mary’s University, Addis Ababa.  
9. Meseret, T. (2016). Determinants of internal audit effectiveness in Ethiopian private commercial banks.  
Master’s thesis, Addis Ababa University.  
10. Mihret, D. G., & Yismaw, A. W. (2007). Internal audit effectiveness: An Ethiopian public sector case  
study. Managerial Auditing Journal, 22(5), 470–484.  
11. Mihret, D. G., James, K., & Mula, J. M. (2010). Antecedents and organisational performance implications  
of internal audit effectiveness. Pacific Accounting Review, 22(3), 224–252.  
12. Mihret, D. G. (2020). Internal audit independence and effectiveness in Ethiopian public institutions.  
Journal of Accounting in Emerging Economies, 10(2), 245–267.  
13. Nebiat Nigussie. (2022). Factors affecting internal audit effectiveness in Ethiopian public sectors.  
Master’s thesis, Addis Ababa University.  
14. Nguyen, T. Q., et al. (2024). Determinants influencing internal audit effectiveness and fraud detection.  
Journal of Governance & Regulation, 13(1), 310–321. https://doi.org/10.22495/jgrv13i1siart5  
15. PwC. (2023). Global Internal Audit Study 2023: Seeing through walls to find new value.  
https://www.pwc.com/gx/en/services/audit-assurance/internal-audit/global-internal-audit-study.html  
16. Samagaio, A., & Felício, T. (2023). Determinants of internal audit quality. European Journal of  
Management and Business Economics, 32(4), 417–435. https://doi.org/10.1108/EJMBE-06-2022-0193  
17. Samuel, G. (2023). Factors affecting internal audit effectiveness: Evidence from Bank of Abyssinia.  
Master’s thesis, Addis Ababa University.  
18. Wondwosen, T. (2019). Factors influencing internal audit effectiveness in private banks of Ethiopia.  
Master’s thesis, Addis Ababa University.  
Page 10404  
www.rsisinternational.org