Internal audit functions and sustainability audits:Insights from manufacturing firms


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A Company’s value system and ethical business practices are the foundation for corporate sustainability
(DeSimone et al., 2021). According to research (Alsayegh et al., 2020; Vieira & Radonjič, 2020), firms
participate in sustainability activities and reporting. According to (DeSimone et al., 2021) , Sustainability
reporting is becoming more and more important to firm global reporting procedures.
In Company internal auditing function has been designed to help and reliable the accounting
information and to safeguard company asset. Internal audit function (IAF) is well placed to provide this
assurance and is an integral component of the corporate governance mosaic. A number of recent
studies (e.g. Gramling et al., 2004; Carcello et al., 2005; Sarens and De Beeld, 2006; Choen et al., 2010)
have reported significant changes in the role of the IAF as a result of recent regulatory reforms in U.S,
U.K, and Australia (e.g. Sarbanes – Oxley Act in the U.S in 2002). These studies call for further research into
the changing nature and effectiveness of the IAF. The present study aims to contribute the literature by responding
to these calls. In 1987 the National Commission on Fraudulent Financial Reporting in United States (VS)
recommended that “all companies should maintain an effective internal audit function” (Treadway, 1987, p,37)
However, research examining why companies choose to use internal audit has been scan our study makes an
important contribution to this growing body of literature. We not explore the factor of an internal function but we
also provide additional descriptive information on the use of internal audit in a voluntary setting.
Internal audit functions (IAFs) can add value to their firm by enhancing risk management and developing a deeper
comprehension of new concerns, like sustainability.
However, the research is limited in how it addresses corporate internal contextual factors that result in the
voluntary assurance of sustainability strategies, programs, and reporting (Corazza et al., 2020; Hoffman,2018). It
also does not address whether IAFs are involved in the audit of sustainability activities and effectiveness (Boiral et
al.,2019; Trotman & Trotman, 2015).
According to studies (Clarkson et al., 2019; García-sánchez et al., 2019) the need to increase the credibility of
information published in these reports in the primary driver behind an organization. The study also advances prior
research on elements that strengthen internal auditor’s contributions to enhancing organizations sustainability
management systems (Brunelli & DiCarlo 2020; Mariucci & Dedi, 2022; Samagaio & Diogo, 2022; Shahidi &
Malvidin, 2022).
The current study provides a unique contribution on the nexus between internal audit functions and sustainability
audits in manufacturing firm.
Literature Review:
The study is guided by two important theories in examining the relationship between internal
audit four function and sustainability audits. Researchers and Scientists Studied Several aspects of
internal auditing with highly focus on efficiency, relevance, globalization and organizational features.
Studies have also provided support for the impotence of the IAF and its ability to contribute to words
quality corporate governance (Beasley et al., 2000; Coram et al., 2008). Perrow (1986) Criticized
Positivist agency researchers for concentrating only on the agent side and claimed that “principal and
agent problem” may also originate from the principal side.
In 2008 Institute of internal Audit (IIA) published new internal audit standards and extended ana
implementation measures. These standards require internal audit activity to the improvement of risk
management control and governance using a systematic approach. “Listed companies must maintain an
internal control.” The relationships between internal audit functions and sustainability audits have been
Hypotheses Development:
The following hypothesis will be tested:
H1: There is a significant influence of risk management process on sustainability audits.
H2: There is a significant effect of sustainability sensitivity on sustainability audits.
H3: There is a significant influence of internal audit effectiveness on sustainability audits.
H4: There is a significant influence of enactments, policies, standards, systems and procedures on
sustainability audits.
Independent Variables:
The independent variable is like to be “Internal audit functions,” as it represents the factor that is
being manipulated or studied.
Dependent Variables:
The dependent variable is what you’re observing to see how it reacts to those changes, in this case,
“Sustainability audits.”
The study quantitative research approach and explanatory research design used specifically
current study connection between the internal audit function and sustainability audits. Evidence was
collected through semi-structured interviews with six Audit Committee Chairs (ACCs) and six Chief Audit
Executives (CAEs). Participants and the sample size is similar to other recent interview studies
investigation the IAF (Sarens and De Beeld , 2006; Choen et al ., 2006; Mat zain and subramaniam,
2007; Sarens et al ., 2009).
The proper sample size for this investigation, given the population size of 2495, was 335. Sample
comprises 450 firms drawn from the university of Queensland-KPMG center for Business Forensics. In
the present study, we found that all key themes present in the initial three interviews and recurred in
each of the subsequent interviews.
Data Collection:
The current study’s is primary data because research to get data directly from managers
of manufacturing Companies in Accra Metropolis, a systematic questionnaire was created. Data were
collected through semi-structured interviews, A protocol was developed for recording and analyzing the
data from the interviews.
The survey collected data on the company annual reports. Financial data included variable concerning
size, profitability, and non-financial data related to corporate governance. The study (see, DeSimone et
al., 2021; Thabit et al., 2019). The current study conducted a preliminary assessment (Kurzhals, 2021).
The results of the pre-testing of questionnaire, the questions were not skipped, and they understood
the questionnaire. Questionnaire in accordance with research objectives.
In conclusion consideration of fraud risk need to be managed in presence maintaining the internal audit
operations, good governance, process are necessary in enhancing sustainability audits. Internal audit
system of Uzbekistan should adapt following features of international internal audit standards and best
New methods of internal auditing process management in consistent with the standards. Internal
assessment improving the organizational system. Internal audit commitment to strong a risk
management. IAF has experienced an expansion and refocus of its rule within the corporate governance.
In future opportunities include in research role of the internal audit risk management.
DeSimone et al., (2021) Correlates of internal audit function involvement in sustainability audit
Alsayegh et al., 2020; Vieira & Radonjič, (2020) Corporate economic, environmental, and social
sustainability performance
Gramling et al. (2004) The role of the internal audit function in corporate governance.
Carcello et al., (2005) Changes in internal auditing during the time of the accounting scandals.
Sarens and De Beeld, (2006) Internal auditor perception about their role in risk management.
Choen et al., (2010) Corporate governance mosaic and financial reporting quality.
(Treadway, 1987, p,37) Report of the National Commission of Fraudulent Financial Reporting.
Sarbanes – oxley Act in the U.S in (2002) Congress
Corazza et al., 2020; Hoffman, (2018) A multi-theory study on legitimacy, impression management and image
Boiral et al ., (2019) Ethical issues in the assurance of sustainability report.
Trotman & Trotman, (2015 ) Internal audit’s role in energy reporting.
Clarkson et al., 2019; International evidence involving sustainability and Firm
García-sánchez et al., (2019) Impact of disclosure and assurance quality of corporate sustainability
reports on access to finance.
Beasley et al., (2000) Fraudulent Financial Reporting.
Coram et al., (2008) Internal audit, alternation audit structures.
Thabit, et al., (2019) The auditing of sustainability development practices in developing countries.
Questionnaire on Internal audit functions and sustainability audits: Insights from
manufacturing firms.
Dear Sir/Madam, I am student of Hailey College of Commerce, Lahore. I am conducting a survey on the
Internal audit functions and sustainability audits in manufacturing Firms. I request you to kindly spare
a few minutes and help us in the survey. Your co-operation will be highly obliged.
General Information:
a. Company Name:
b. Industry Sector:
c. Number of Employees:
Q: Factor Analysis of Internal Audit Functions:
Factors Yes No
Factor 1: Internal Audit Functions
a. How would you define the primary objectives of your internal audit functions?
b. To what extent does your internal audit team assess and monitor risks related to
sustainability in manufacturing processes?
c. Are there specific sustainability standards or frameworks that your internal audit team
Factor 2: Sustainability Integration
a. How does your manufacturing firm integrate sustainability considerations into its overall
business strategy?
b. Does your internal audit team have dedicated procedures or criteria for evaluating
sustainability performance?
c. To what degree are sustainability metrics considered in routine internal audit processes?
Factor 3: Training and Awareness
a. Have internal auditors in your firm received specific training on sustainability-related
b. How do you ensure that internal auditors stay informed about emerging sustainability
trends in the manufacturing industry?
Factor 4: Audit Influence on Practices
a. Can you provide examples of instances where internal audit findings have led to
changes in sustainability practices within the manufacturing operations?
b. How are audit recommendations related to sustainability communicated and
implemented within the organization?
Factor 5: Stakeholder Involvement
a. In what ways do you engage key stakeholders (employees, suppliers, etc.) in the sustainability
audit process?
b. How do you address stakeholder feedback or concerns identified during sustainability audits?
Factor 6: Performance Measurement
a. How does your firm measure the effectiveness of internal audit functions in promoting
sustainability? b. Are there specific key performance indicators (KPIs) used to evaluate the impact
of sustainability audits?
Factor 7: Evolution Over Time
a. How has the importance of sustainability audits within your manufacturing firm changed over the
past few years?
b. Are there any future plans or initiatives to enhance the role of internal audits in sustainability?
Q. Rate the following Attributes of Manufacturing Firm:
1)Strongly Agree 2) Somewhat Agree 3) Neutral 4)Somewhat Disagree 5)Strongly Disagree
ATTRIBUTES 1 2 3 4 5

  1. How would you describe the role of internal audit functions in your
    manufacturing firm?
  2. To what extent does your internal audit team currently focus on
    sustainability-related aspects?
  3. What specific sustainability criteria or indicators does your firm
    consider during internal audits?
  4. How do you ensure that your internal audit processes align with
    the sustainability goals of your manufacturing operations?
  5. Have you implemented any specialized training for internal
    auditors to address sustainability issues?
  6. Can you provide examples of how internal audit findings have
    influenced sustainability practices within your manufacturing processes?
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