Document Type : Original Research Paper

Authors

• Hamidreza Ganji ¹
• Fatemeh Ferdowsmakan ²

¹ Assistant Professor, Department of Accounting, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran.

² Master of Accounting, Department of Accounting , Faculty of Social Sciences and Economics , Alzahra University, Tehran , Iran .

Abstract

BACKGROUND AND OBJECTIVES: Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. Internal auditing helps the organization achieve its objectives by providing a systematic and disciplined approach to evaluate and improve the effectiveness of governance, risk management, and control processes. The quality of internal auditing, as one of the pillars of corporate governance, affects the accuracy, transparency, and completeness of the information and performance presented. Improving financial performance is one of the goals of organizations, and the application of adequate internal auditing practices will contribute to achieving it. The purpose of this study is to determine the impact of internal audit quality on financial performance in insurance companies. Since previous research has not specifically examined the impact of internal audit quality on the financial performance of insurance companies, and considering that the quality of internal auditing in insurance companies can lead to assurance and facilitate economic activities, while a dedicated examination of the insurance industry as an influential and important financial institution can strengthen the country economically, in this study we intend to investigate the impact of internal audit quality on performance based on both financial and non-financial results of insurance companies, as well as strategies for its continuous development. To address the existing research gap regarding how internal audit quality affects the financial performance of insurance companies, the present study aims to answer the question of whether there is a significant relationship between internal audit quality and the financial performance of insurance companies.
METHODS: The research is classified as applied in terms of purpose, meaning it seeks to generate practical insights that can inform real-world decision-making, rather than purely theoretical contributions. The approach is framed within inductive reasoning, where specific observations from the data are used to draw broader generalizations. The statistical population of the current research is listed insurance companies whose audit committee and internal audit unit information has been disclosed on the CODAL website, www.codal.ir. Internal audit quality from the perspective of internal auditor's qualification, internal auditor's independence, and internal audit's efficiency were also considered as independent variables. This study adopts a correlational research design, which involves examining the relationships between variables without manipulating them, making it suitable for exploring associations in real-world settings. To measure the internal audit independence criterion from the audit committee independence index, for internal audit competence from the financial expertise of the director of the internal audit unit, and also, to measure the efficiency of internal audit, the size of the internal audit unit was used as an index. Return on assets (ROA) ratio was used to measure financial performance. The data of this dependent variable were obtained from the audited financial statements of insurance companies. Multiple linear regression analysis is used as a data analysis technique.
FINDINGS: Since the insurance sector is considered one of the important sectors that plays a fundamental role in the dynamism of financial markets and the provision of investable funds, leading to confidence and facilitating economic activities, we investigated the impact of internal audit quality on the financial performance of insurance companies. The results of this research showed that the independence of internal audit has no significant effect on the financial performance of insurance companies. On the contrary, the competence of internal audit and the efficiency of internal audit have a significant positive effect on the financial performance of insurance companies. The results of the examination regarding the control variables indicate that there is a significant negative relationship between financial leverage and financial performance, given the negative coefficient, and also a significant positive relationship exists between company growth and company size, with the financial performance of insurance companies. Given the importance of having a high-quality internal audit, further studies should examine the areas related to the quality of this type of audit.
CONCLUSION: This study aimed to increase the importance of internal audit for insurance companies. This research provides empirical evidence that enriches the existing literature on the subject, with a specific focus on the insurance sector in Iran. On behalf of policymakers and regulatory bodies, such as the Central Insurance of Iran and the Securities and Exchange Organization of Iran, these findings can guide the development of governance standards and reporting mandates. Based on the above findings, this study provides regulators and policymakers with insights into the importance and actionable insights of internal audit quality in enhancing financial performance for various stakeholders, especially the need for monitoring potential reforms in corporate practices to align with global trends. This study supports broader goals and practices in the development of the insurance sector. Additionally, more research may be conducted to explore the potential value of audit quality for other stakeholders, particularly to determine whether the quality of internal audit affects independent auditor reports.

Keywords

• Financial performance
• Insurance
• Insurance companies
• Internal audit quality

Main Subjects

• Corporate Governance in Insurance Companies