Psychological capital, moral courage and internal audit effectiveness (IAE): a complementary or substitution effect

Abstract

Purpose This paper aims to examine the impact of two psychological drivers, namely, psychological capital (PsyCap) and moral courage on internal audit effectiveness (IAE) and whether there is a substitution effect or complementary role of these psychological factors on IAE in the Tunisian setting. Design/methodology/approach IAE is measured using managers’ perceptions of the internal audit function based on 157 responses received from managers, while the remaining variables (including PsyCap and moral courage) are based on 157 internal auditors’ responses. Findings Findings suggest that PsyCap has a positive and significant impact on IAE, while moral courage has an insignificant impact on the same variable. Accordingly, PsyCap and moral courage are not playing a complementary role in improving IAE, and PsyCap substitutes for moral courage in increasing IAE. A battery of checks using interaction terms between moral courage and PsyCap corroborate these findings. Originality/value To the best of the author’s knowledge, this study fills one of the major research gaps in the auditing literature by emphasizing the role played by PsyCap in improving IAE. The findings may have policy implications for top firm management, especially when recruiting internal auditors who should enjoy efficacy, hope, resilience and optimism to help the organization achieve its strategic objectives and increase its performance.

The working relationship between internal and external auditors and the moral courage of internal auditors: Tunisian evidence

“…It should be noted that our results can be relevant not only for the Tunisian setting but also for the international context and particularly for MENA [2] countries as they share close cultural and institutional characteristics (Al-Akra et al, 2016;Khelil, 2022).…”

“…To reinforce financial transparency corporate governance procedures and financial transparency in Tunisia, the guide to good practice for the governance of Tunisian AGJSR 41,4 companies (2012) requires the creation of an internal auditing function and audit committee (Khelil, 2022). However, unlike external auditors who operate under a clear jurisdictional framework in the code of commercial companies in Tunisia (in terms of duties, rights and appointments), Tunisian internal auditors function within a jurisdictional void with no formal rules regulating their duties and roles.…”

“…It is believed that telling the truth by reporting management fraud has various beneficial effects not only for organizations but for society as a whole (Balafoutas, Czermak, Eulerich, & Fornwagner, 2020;Khelil, 2022). Indeed, previous evidence has shown that reporting wrongdoing has protected the interests of several stakeholders including employees, consumers, minority investors and citizens since it allows the company to continue the activity and avoid bankruptcy (Miceli, Near, & Schwenk, 1991;Harbour & Kisfalvi, 2014).…”

“…Recent financial scandals have emphasized the role played by internal auditors in reporting frauds and wrongdoings Khelil, 2022;Eulerich et al, 2021;Christ et al, 2021). However, the decision to report detected fraud is dependent on certain virtues and personal characteristics of internal auditors.…”

“…Noting that Tunisia is adopting an approach to enhance transparency and good corporate governance, revealing what encourages internal auditors to break their silence and behave ethically can help perform this goal. Indeed, auditing literature support that an ethical Internal and external auditors internal audit function can improve corporate governance by reporting financial irregularities, reducing administrative corruption and deterring employee theft (Gramling, Maletta, Schneider, & Church, 2004;Asiedu & Deffor, 2017;Khelil, 2022).…”