Government Taxation Policy as a Boundary Condition Between Internal Auditing Techniques and Perceived Financial Performance in Manufacturing Companies in Uganda

Abstract

Manufacturing firms rely on internal auditing to protect assets, control operational risk and support financially sound decisions, yet these benefits may depend on the external tax environment in which audit systems operate. This article examined whether the government taxation-policy environment moderated the relationship between internal auditing techniques and perceived financial performance in the Mbarara branches of Coca-Cola Beverages Uganda and Nile Breweries Limited. A cross-sectional explanatory sequential mixed-methods design was used. Quantitative data were obtained from 87 employees out of 92 selected questionnaire respondents, while qualitative evidence was generated through eight key-informant interviews with branch managers, internal auditors, finance officers and accountants. Composite measures were analysed using hierarchical regression and Hayes PROCESS Model 1 after mean-centring the predictor and moderator; interview data were analysed thematically and integrated with the statistical results. Internal auditing techniques explained 41.6% of the variance in perceived financial performance. Adding the taxation-policy environment increased explained variance by 2.6%, whereas the interaction term produced a further statistically significant 4.4% increase. The interaction was positive and significant (B = 0.238, SE = 0.089, t = 2.67, p = .009, 95% CI [0.061, 0.415]). The conditional effect of internal auditing on perceived financial performance rose from B = 0.429 under a less enabling tax environment to B = 0.739 under a more enabling environment. Interviews explained this pattern through policy clarity, timely communication, organisational adaptability and compliance costs. The article concludes that internal auditing is not institutionally self-sufficient: clear, predictable and manageable tax requirements amplify its financial contribution. Tax authorities should accompany policy changes with timely implementation guidance, while manufacturers should integrate tax-change monitoring, audit planning, system configuration and staff training.