Article Name-The Impact of Culture on the Quality of Internal Audit: An Empirical Study. Publisher-SAGE Publisher

1. Presented By.
Abhijith Mohanan
TPS-15B10

2. Abstract
This study draws on Hofstede’s theoretical framework to examine the
impact of different dimensions of culture on the quality of internal
audit (QIA) in Saudi Arabia. A sample of chief internal auditors from 67
listed companies has been used to examine the direct effect of the
cultural dimensions of power distance, uncertainty avoidance, and
individualism on the QIA. Evidence was found that organizations, in
which power distance and uncertainty avoidance are high, are
characterized by lower QIA. The results also show a positive association
between individualism and the QIA, indicating that internal audit is
largely based on the accomplishments of the individual internal
auditors associated with the process. Considering these outcomes from
the Saudi Arabian standpoint, where the cultural and economic
contexts are underpinned by collectivism rather than individualism, it
emerges that it is only comparatively recently that a tradition of
governance and audit has started to develop, and that quite particular
and strong cultural influences stemming from tribalism and pervasive
core traditions beliefs operate to condition the effort to achieve the
ideal internal audit environment.

3. Introduction
 The importance of internal audit quality is well-accepted in the
developed countries, where the International Standards for the
Professional Practice of Internal Auditing (ISPPIA) are complied
with through the actions of Chief Audit Executives (CAEs), who
facilitate the internal audit function (IAF) in a variety of ways.
 their brief is to in still a sense of professionalism within internal
auditors, and implement organizational structures to allow them
to operate unhindered in the interests of effective internal
control and transparency.
 The varying attitudes are the result of differing cultural outlooks
and traditions, a topic which has raised interest among
researchers concerning the influential role of culture upon the
way in which auditing in general operates.

4. Problem Statement
• The Prevailing Dimensions of Culture in Saudi Arabia. A
sample of chief internal auditors from 67 listed
companies has been used to examine the direct effect
of the cultural dimensions of power distance,
uncertainty avoidance, and individualism on the QIA.
• Hypothesis (H1): Power distance with the QIA.
• (H2): Uncertainty avoidance with the QIA.
• (H3): Individualism with the QIA.

5. Review Of Literature
• Cultural dimensions have served as the basis for a number of cross-cultural studies in auditing,
in which it has been found that a significant variation exists in practice according to cultural
context. One of these studies, undertaken by Hughes et al. (2009), explored the role played by
three of the cultural dimensions proposed by Hofstede—power distance, uncertainty
avoidance, and individualism—in the investigative procedures performed by entry-level
auditors in Mexico and the United States. In that particular study, it emerged that the
participants’ abilities to predict income statement balances were not in themselves impaired by
these cultural dimensions, but that there was the potential for these dimensions to affect their
ability to predict changes in balance sheet accounts. Moreover, they highlighted the effect of
culture upon the risk assessment process, showing that auditors rarely differentiated between
accounts that changed according to, from those that changed contrary to, expectation; instead
they amended their risk assessments to match the direction of balances that increase or
decrease. In another recent study, Hope et al. (2008) constructed a novel measure of how
secretive societies are based on Hofstede’s (1980) cultural factors and employed a large sample
of firms (i.e., 91,030 firm-year observations) from 37 countries, to explore the impact of
national culture on the choice of auditors..

6. Research Method
• Independent Variables:The three cultural
dimensions—power distance, uncertainty
avoidance, and individualism.
• Dependent Variables:The hypotheses are
tested using multiple linear regression. A
multiple regression was performed between
QIA as the dependent variable and the
independent Variables.

7. Descriptive Statistics Quality of Internal Audit and Cultural
Dimensions.

8. Correlation between the QIA and Average scores of cultural dimensions.
• Regression results of the QIA against the 3
cultural dimensionsRegression results of the
QIA against the 3 cultural dimensions
Regression results of the QIA against the 3 cultural dimensions

9. Results
Power distance is quite clearly inversely
associated with the QIA
 With regard to uncertainty avoidance, the
results indicate that uncertainty avoidance is
negatively correlated with QIA
The results indicate that individualism is
positively correlated with QIA

10. Discussions
Power distance is quite clearly inversely
associated with the QIA. These results support
the hypotheses that higher QIA is expected in
organizations with lower power distance.
These results support the hypotheses that higher
QIA is expected in organizations with lower
uncertainty avoidance.
the results indicate the individualism is positively
correlated with QIA. These results do not support
H3.

11. Suggestions
 A gradual shift to a more relaxed and consultative
approach in the workplace will ensue, thereby
precipitating a drop in the extent of power distance
within business organizations, and by implication, the
national culture.
 In case of Uncertainty avoidance it suggests
organizations where uncertainty avoidance is low are
characterized by higher QIA.
 It is essential to return to the specific cultural context
of Saudi Arabia,which as highlighted earlier, results in
the family being regarded as the center of community

12. Conclusion
 This study provides indicative evidence as to the manner in
which cultural dimensions—power distance, uncertainty
avoidance, and individualism—affect the QIA.
 The results indicate that power distance is negatively
associated with the QIA. More specifically, organizations
where power distance is high are characterized by lower
QIA and vice versa.
 Internal auditors who behave in an individualistic as
opposed to a collectivist manner are believed to be
intrinsically motivated to work toward improving their
professional practice as ultimately this will be
advantageous to their own promotion

13. • Thank You 