Internal Audit Functions and Financial Performance: Evidence from Commercial Banks in Afghanistan

Abstract

This study examines the effect of internal audit effectiveness on the financial performance of licensed commercial banks in Afghanistan. Professional competency, the internal control system, independence of internal audit, and conformity with internal audit standards are the primary determinants of internal audit effectiveness. Primary data was gathered from 58 internal auditors, financial department staff, and risk management department staff of all eleven licensed commercial banks in Afghanistan through a structured questionnaire survey. The research approach employed was descriptive cross-sectional. Data were analyzed using descriptive statistics, Pearson correlation, and multiple regression analysis. There was a positive correlation between financial success and both professional competency and compliance with internal audit standards; the former was shown to be more important. However, there is little evidence that independence of internal audit or the effectiveness of internal control system have any bearing on financial results. This research has important consequences for financial regulators, internal auditors, and managers of Afghanistan commercial banks since it gives fresh empirical data about the sector in the post-conflict era.