Does the interaction between internal and external audit matter? A Moderating evidence from the relationship between internal audit function, management support and the effectiveness of internal audit

Inside every company, there is a quiet but vital system designed to keep the organization honest and running smoothly. This system relies on two distinct groups of professionals who act as the company's internal watchdogs. The first group consists of internal auditors, employees who work within the organization to check if rules are being followed, risks are managed, and resources are used wisely. The second group is the external auditors, independent experts hired from outside to verify the company's financial records for the public and investors. For a company to thrive, these two groups must work effectively on their own, but they also need to interact well with one another. The question researchers have long asked is what makes these internal teams truly effective. Is it simply having skilled staff? Is it having bosses who back them up? Or does the way they talk and coordinate with the outside experts change the outcome?

A team of researchers from King Faisal University in Saudi Arabia set out to answer these questions by looking closely at small and medium-sized businesses in their country. They focused on three main ingredients that might make an internal audit team successful: the team's ability to work without interference, the professional skills of the people on the team, and the level of support they receive from senior management. They also wanted to see if the relationship between the internal team and the external auditors acted as a force multiplier, making the internal team's work even better when the two groups collaborated. To find the answers, the researchers surveyed 147 internal auditors working in these Saudi businesses, asking them to rate their own independence, their skills, the support they got from their bosses, and how well they worked with external auditors.

The results revealed a clear picture of what drives success and what does not. The study found that the most powerful factors for a successful internal audit were the team's independence and their competence. When internal auditors could do their jobs without pressure from others and possessed the necessary knowledge and training, the overall effectiveness of their work improved significantly. The data showed that these two factors were the primary engines of success, with independence being the strongest influence. However, the researchers discovered something surprising regarding the third ingredient: support from senior management. Contrary to what many might expect, the study found that the level of backing or encouragement from top bosses did not have a statistically significant impact on how effective the internal audit team was in this specific context. While management support is often assumed to be crucial, in these particular Saudi businesses, it did not appear to be the deciding factor for success.

The most nuanced finding of the research concerned the interaction between the internal and external auditors. The study showed that this relationship does not just exist; it actively changes how the internal team performs. Specifically, the collaboration between the two groups strengthened the link between the internal team's skills and their success. When internal auditors worked closely and cooperatively with external auditors, their professional competence translated into even better results. It was as if the external partnership helped the internal team's skills shine brighter. Interestingly, this same collaborative boost did not apply to independence; the relationship with external auditors did not change how independence affected effectiveness. The study suggests that while having a skilled team is essential, that skill is most potent when the internal and external auditors are working in sync.

These findings offer a practical guide for business owners and regulators in Saudi Arabia and beyond. The research indicates that to build a truly effective internal audit function, organizations should prioritize hiring and training highly skilled auditors and ensuring they have the freedom to work without interference. While maintaining a good relationship with senior management is important, the study suggests that the direct link between management support and audit success may be more complex than previously thought. The most actionable insight is that fostering a cooperative environment between internal and external auditors can significantly amplify the value of a skilled internal team. By focusing on competence, independence, and collaboration, companies can create a more robust system of checks and balances that protects their interests and ensures they are operating with integrity.