The Effect of Audit Characteristics Index on Investment in Internal Audit Function in Malaysia Listed Companies

The purpose of this study is to examine the effectiveness of audit committee characteristics on investment in internal audit function. This study developed an index by combining the individual characteristics of audit committee into one variable to capture audit committee effectiveness. Data relating to audit committee and internal audit were extracted from the annual reports of the top 100 listed companies in Malaysia. The findings of this study shows that audit committee index is negative and significantly associated with investment in internal audit function. This result implies that there will be lower investment in internal audit when the audit committee are effective. The study also found a negative relationship between audit committee independent and investment in internal audit while no relationship was established between audit committee expertise and investment in internal audit function. The findings presented in this study offer invaluable implication for regulators on important factors that should be taken seriously before investing in internal audit.