Internal Audit And Corporate Governance
1.1 Background of the study
Over the years the role of the internal auditor in companies has continued to gain importance. This is because the internal auditor adds value to the organization, which could be quantified in monetary terms through their evaluation of controls. Harsh economic conditions coupled with complex market conditions, fraud and financial scandals, failed corporate governance policies have made it difficult for organizations to achieve their key objectives (Mikes & Kaplan, 2013). This has necessitated an effective internal audit role in order to carefully analyze the business risks identified and recommend timely corrective actions.
The internal auditor occupies a unique position in the organization. He or she is employed
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This is achieved by ensuring the whole organization is aware of the controls, the systems in place and they are adhered.
Internal auditor independence in the functions and responsibilities determine the quality of report. The audit committee support and expertise ensures the reporting is not influenced by the management. CBK Prudential guidelines 2013 (CBK/PG/02) requires that all commercial banks establish an independent board of Audit committee to provide an independent oversight of the institution’s financial reporting and internal control system, ensure checks and balances within the institution are in place and to recommend appropriate remedial action regularly.
Financial development of a country is indicated by the growth of its financial institutions, in Kenya there is tremendous growth of the banks, microfinance institutions and the agency banking (Kiambati et al, 2013). Financial institutions exist to make profits by selling their products or services to the people. They maximize profits by continuously developing new products that suits the needs of their target customers (Mishkin
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The internal factors such as size, capital, risk management and management expenses, personnel and bank innovativeness. The external factors include inflation, interest rates and cyclical output among other market variables (Alam et al, 2011).The internal factors are within the control of the bank and corporate government policies have been put in place to counter some of them. In Kenya different government, regulations have interfered with the financial performance of the listed commercial banks, for example the recent laws enacted on the interest capping which has marginally reduced commercial banks’
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