The above internal
audit functions are very key and relevant in enhancing corporate governance
structures of an organization, thereby increasing shareholder value. In order
to play a positive and effective role in enhancing corporate governance,
internal unit should be adaptive to new changes and should operate like any
other business unity and hold itself accountable for operational excellence.
Internal audit should be a key driver to the organization’s value charter and
should high quality service to the organization.  It should also a catalyst for strengthening
organization internal controls and its control environment through continuous
assessment and monitoring of internal controls. Internal audit should be viewed
as a effective driver for enterprise efficiency for both in terms of operations
and general wide management of the organization. In order to assist an
organization accomplish its objectives as decided by the board enshrined in its
strategic plan, internal audit should develop specific strategy that matches or
aligned to key business risks, operations and financial priorities.      


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it is worth noting that internal audit acts as an important line of defense for
any company and its failure may lead to the failure of the organization itself.
The recent corporate governance scandals under investigation such as Tesco and
Mobily, have one issue in common; misstatement of the financial figures. The
internal auditors thus may have a responsibility in educating audit committees
on what is important and the questions audit committees are supposed to raise
at their meetings. Historically, when internal audit focused on monitoring
business operations, processes and internal control functions, it examined
whether a control was being performed or procedures were followed and report
either in affirmative or in negative. Whereas now internal audit’s focus is not
on whether a control is being performed but on whether it is the right control
and if it is being performed correctly and cost effectively. The internal audit
activity and certainly audit committees should be more forward than backward

Audit must also maintain an up-to-date set of policies and procedures, and
performance and effectiveness measures for the Internal Audit function.
Internal Audit should continuously improve these in light of industry
developments. Due to its complexity and importance, it is recommended that the
role of internal audit is articulated in an Internal Audit Charter that is
reviewed annually, possibly by a third party, in order to make sure that it is
matching with the evolving best practices.

the quality of the carrying out the internal audit function may have serious
implications on the company and on its stakeholders, the internal audit should
establish and maintain a quality assurance and improvement program. Where the
internal audit function is outsourced to an external provider, Internal Audit’s
work should be subject to the same quality assurance work as the in-house
functions and the results of this quality assurance work should be presented to
the Audit Committee at least annually for review.

to their important role, it is recommended that the Chief Audit Executive, and
other senior managers within Internal Audit, have an open, constructive and
co-operative relationship with regulators which supports sharing of information
relevant to carrying out their respective responsibilities. In such cases,
however, it is important that this be done within the framework of corporate
governance of the organization, the one that is approved by the board of
directors and endorsed by the owners if necessary.

Institute of Internal Auditors has issued Standard No 2060 on internal audit
reporting to senior management and to the board, which specifies that “the
chief audit executive must report periodically to senior management and the
board on the internal audit activity’s purpose, authority, responsibility, and
performance relative to its plan. Reporting must also include significant risk
exposures and control issues, including fraud risks, governance issues, and
other matters needed or requested by senior management and the board.”

internal auditor should, at least annually, carry out an assessment of the
overall effectiveness of the governance, risk and control frameworks of the
organization, together with an analysis of themes and trends emerging from
internal audit work and their impact on the organization’s risk profile. A
comprehensive report is then presented to the audit committee and the board
with the results and recommendations as well as the challenges that may need
board interventions to handle.

auditor, with the help and guidance of the audit committee, must be able to set
the right priorities. Therefore it is recommended that internal audit follows a
risk based approach, focusing on the high risk areas, going down the ladder as
much as possible. The audit committee also assists the internal audit by
discussing with him/her the adequacy of resources and skills available to
address risk identified with the audit committee. It is the role of the board/
audit committee to make sure that internal audit has enough resources and calibers
to do their job right, keeping in mind that the failure of internal audit is a
failure of the board itself and may represent high risk on the organization.

internal auditor should, at least annually, carry out an assessment of the
overall effectiveness of the governance, risk and control frameworks of the


Apart from agency
problem, others include those arising between external stakeholder and owners
of the corporation. External stakeholders include
government and the general public among others. Such external stakeholders
usually impose certain conditionality which organizations are suppose adhere
which if not adhered to can attract legal action such penalties or closure
which might ultimately affect the organization’s going concern status and
therefore affect shareholder value. If such a negative aspect was to happen
might put a very big question mark on existence of corporate governance structures
whose main objective is to safeguard and increase shareholder’ investment. In
this aspect, internal audit plays an important positive role by regularly
evaluating and assessing compliance risk as part of risk-based audits and
recommending for any mitigation measures to reduce or eliminate such risks.

Enhancing Compliance


accountability requirements are fundamental key aspects of corporate governance
for any organization to be successful and increase shareholder value. In line
with this objective, internal audit examines the financial records prepared by
managers and assess the accuracy and reliability of information therein in
order to detect any possibility of fraud or error. As can cited from the Enron
scandal, one of the major risks that was noted from the case was fraudulent
accounting through illegal means such off balance accounting, insider dealings,
inadequate disclosures of fundamental information related to organization’s
operations and lack of transparency among others. In this regard, internal
audit provides an independent and objective examination of organizational
affairs and audit communicate results to the board through audit committees in
order to detect any misappropriations, fraud or error. Therefore internal audit
increases accountability and transparency of organization activities, thus
enhances corporate governance.


the view of Orjioke, (2002) and Muhammad, (2004) accountability is the
compulsion to react to a responsibility that has been conferred on someone. It
is an obligation which requires managers to answer to the investors for the
execution of their assigned responsibilities. It usually measures performance
against defined criteria such as agreed rules and standards and requires
managers to report fairly and accurately on the performance of organization
affairs (Adegite, 2010).  United Nations
Development Programme outlined three pillars of accountability Tagged ATI
(Accountability, Transparency and Integrity). Accountability which is divided
into: (a) Financial accountability – the obligation of anyone handling
resources, public office or any other position of trust, to report on the
intended and actual use of the designated office. (b) Administrative
accountability – this type of accountability involves a sound system of
internal control, which complements and ensures proper checks and balances
supplied constitutional government and an engaged citizenry. These include
ethical code, criminal penalties and administrative reviews.

Tool for increasing Performance
Management & Accountability  

of the fundamental principles which auditors should possess is integrity which
means having virtuous character which values high ethical morals and values
(ACCA – Advanced Audit and Assurance, 2016). Everest and Trembla (2014)
revealed that ethics of auditing should not solely only consider the audit
practice but rather also consider the character of the auditors.  Therefore, internal auditors should exercise
objective judgment and maintaining professional integrity as an essential role.
This is in line corporate governance requirements which insist on having
managers with high integrity and one that plants a culture that values high
ethical values and morals. Therefore internal auditors, through both objective
audit work and their high personality helps to increase organizational

Promotes ethics and values


Internal controls
are a whole range of control activities put in place by management to minimize risks
and ensure that organizational processes and procedures are adhered to.
Internal audit should provide an assurance that internal controls are
sufficient and are working well in order to minimize the space for errors and misconduct.
Internal Auditing should conduct a comprehensive analyses and appraisals of all
business activities and provides management with appropriate recommendations
concerning the activities reviewed.  This should include business process
audit which should appraise the adequacy and efficiency of accounting,
financial and operating controls; information system audits which focus on
technical Information System audit activities, system development and
application reviews and cost-effective internal control is in place. Internal
Auditing can instigate or partake in internal control related business process
improvement activities in order to identify and minimize control deficiencies
in business processes, thus resulting in strengthened internal control and optimal
performance. In evaluating controls, internal audit also assesses compliance to
laws and regulations and related risks arising from failure to adhere to such

Evaluation of Internal Controls

following are the major role internal audit plays in corporate governance:

achieve its roles/ functions, different types of audits are conducted and
include: financial audit, operational audit, compliance audit, performance
audit and program audit among others.

provides an independent
assurance that the organization is operating as intended 

ensuring adherence to
internal controls, laws and regulations

ensures attainment of
effective performance management and accountability

promotes ethics and values
within an organization

risk monitoring and management
and communication information on risks identified and of appropriate controls
to different areas of the organization

internal auditing plays critical role/functions in corporate governance and
includes the following:

Effectively coordinating
the activities of and communicating information among the board, external and
internal auditors and management.”

Promoting appropriate
ethics and values within the organization

Ensuring effective
organizational performance management and accountability

Effectively communicating
risk and control information to appropriate areas of the organization

Internal audit
should therefore evaluate and make appropriate recommendations for improving
the organization’s governance process in its accomplishment of the following

§  Accomplishment of established
objectives and goals for operations or programs.

§  Effectiveness and efficiency of

§  Economical and efficient use of
resources; and

§  Safeguarding of assets;

§  Compliance with policies, plans,
procedures, laws, and regulations;

§  Reliability and integrity of

for the Professional Practice of Internal Auditing General Standard 300 outline the
scope of work of internal auditors and included the following paramount

auditing is an independent, objective assurance and consulting activity
designed to add value and improve an organisation’s operations (IIA 1999).
Internal auditing is an effective and critical tool of corporate governance
whose main objectives is to evaluate and improve the effectiveness of risk
management, control and governance structures. Thus, internal auditing is an
independent ‘eye’ of investors which ensures attainment of organization
objectives (strategic, operation, reporting and compliance objectives) and
improves governance systems. Internal auditing plays important role corporate
governance through its monitoring function (Ghita et al. 2010). The role of
internal auditing should be more in detail than the traditional concept of
controlling and safeguarding corporate assets, regulatory compliance and
enforcing corporate policies. The critical role of internal audit is rather to
focus on value creation for an organization, and on evaluating and suggesting
improvements to corporate governance systems of organizations.


governance is the broad term desribes the processes, customs, policies, laws
and institutions that directs the organizations and corporations in the way
they act, administer and controll their operations. It works to achieve the
goal of the organization and manages the relationship among the stakeholders
including the board of directors and the shareholders. It also deals with the accountability
of the individuals through a mechanism which reduces the principal-agent
problem in the organization. Fine corporate governance is an essential standard
for establishing the striking investment environment which is needed by
competitive companies to gain strong position in efficient financial markets.
Good corporate governance is fundamental to the economies with extensive
business background and also facilitates the success for entrepreneurship.
During the last two decades the research area in finance is primarily focus on
the area of corporate governance. The separation of ownership from control is
the core of the agency problems facing by the firms (Berle & Means 1932;
Jensen & Meckling 1976). This leads to many issues related to efficient control
for the assets of corporations in the interest of all company’s stakeholders. A
great research has been done in the area of corporate governance by keeping the
agency related problem. Core (1999) firms who have weaker governance to direct
and manage company matter face greater agency problems. The agency problem
allows manager to extract more private benefits and the firm ultimately
performs worse. Firms therefore, needed for the improved corporate governance
in order to survive for long term growth and survival. A good corporate
governance can occur in the organization by putting the balance between the
ownership and control and also among the interests of stakeholders of the firm.
This approach might be helpful in developing the positive attitude among the
manager and shareholders and reduces the agency problems in the firms. This
paper presents the broad view of corporate governance from various perspectives
and tries to link it with the agency problems where required. It gives an
overview that how corporate governance handles the deviation between the
mangers and shareholders interests. The mechanism of effective corporate
governance will help to determine the difference between ownership and control
by giving the view of topic from different angles and tries to solve the agency
problems in the organizations.



Keywords: Corporate governance, agency
theory, ownership, shareholders, managers.

Governance is a broad term defines the methods, structure and the processes of
a company in which the business and affairs of the company managed and
directed. Corporate governance also enhances the long term shareholder value by
the process of accountability of managers and by enhances the firm’s
performance. It also eliminate the conflict of ownership and control by
separately defines the interest of shareholders and managers. This paper
reviews the extensive literature of corporate governance practices to find out
the main role internal audit plays in corporate governance of companies and
institutions. The paper also focuses on to reduce the principal-agent problem
due to the effective role of internal audit in corporate governance mechanism in
the organizations.