Impact of internal audit quality on the financial performance of insurance companies: Evidence from Kosovo

Abstract

Purpose: Increasing financial performance requires the application of adequate internal audit prac¬tices. Aiming to this study, was requested to determine the effect of internal audit on financial perfor¬mance in insurance companies in Kosovo. Methodology: The return on assets (ROA) ratio was used to mea¬sure finan¬cial performance. Data for this dependent variable were obtained from the six-month state¬ments of insurance companies operating in Kosovo during the period 2015 - 2021. Internal audit was viewed from the perspective of inter¬nal auditing standards, the professional competence of the internal auditor, the independence of the internal auditor and the efficiency of internal audit, which were also taken as independent variables. The researcher applies a survey questionnaire to each member of the target population consis¬ting of mem¬bers of the Board of Directors, members of the Audit Commi¬ttee, mana¬gers of various departments, internal audit officers, legal officers and finance officers. Also, three con¬¬trol variables (growth, size and age of the company) were ta¬¬ken. As data analysis techniques are used quantitative ana¬ly¬sis and regre¬ssion analysis. Findings: From the findings, the study concludes that professional compe¬tence had a signi¬fi¬cant positive impact, in contrast to the effi¬cien¬cy of internal audit, which had a negative impact on the financial performance of insurance companies. The study also found that the other two independent variables (internal audit standards and inter¬nal auditor indepen¬dence) had a ne¬ga¬tive correlation with financial performance but not significant. The size of the insurance com¬pany also had a significant positive relationship, in contrast to the age of the company which had a negative and significant impact on the financial performance of insurance com¬pa¬nies operating in Kosovo. Originality/Value: The study aims to increase the importance of internal audit for insurance companies, as in general, the importance is given only to external audit and its reports. It is also hoped that the recommendations will support decision-making authorities in addressing and identifying current problems and taking measures to eliminate them. Based on the above findings, this study provides insights to regulators and policymakers about the importance of audit quality in enhancing financial performance.