Effect of internal audit function on financial performance of commercial banks in the UK Part 1 (GC01438)
Table of Contents
Research Title.
Abstract
1.1 Background of Study.
1.2 Research Problem.
1.3 Research questions.
1.4 Aims and Objectives.
Aims.
Objectives.
1.5 Significance of the Study.
2.0 Literature Review.
2.1 Internal audit
2.2 Financial performance.
2.3 Impact of internal audit on financial performance.
3.0 Research Methodologies.
4.0 Time frame.
References.
Abstract
The purpose of this study is to analyze the impact of internal audits on the financial performance of commercial banks. This study mainly focuses on risk management and corporate governance. In addition, this study evaluates the internal audit in banks, their roles in banks, and their impact on the financial performance of commercial banks. The objectives of this study are a) to identify the determinants of internal audits in the perspective of UK commercial banks; b) to identify the determinants of financial performance in UK commercial banks; c) to evaluate the impact of internal audit on financial performance in UK banking sector; and d) to provide recommendation on internal audit function for UK commercial banks.
As methodologies, interpretivism philosophy and inductive research approaches are used in this research. The explanatory research design is suitable for this research. In this study, both primary and secondary data sources are used to meet the research objectives. As primary data sources, this study follows the survey method and as secondary data sources, this study follows several books, journals, websites, reports published by third parties, and company annual reports. This study uses both qualitative and quantitative research methods for gaining their target and purposes in this study. The non-probability sampling method is used in this research by selecting 30 participants at random from different branches of Santander Bank. The participants were selected from male and female randomly and from different age groups: 21-30, 31-40, 41-50, and 50+, and the participants came from different education levels including MPhil/Ph.D., postgraduates, undergraduates, and diploma. This study uses the SPSS application and MS Excel Sheets to present and analyze quantitative data. In addition, thematic and content analysis techniques are used to present and analyze qualitative data.
For improving the efficient financial performance suitable internal audit practices are needed. The purpose of this study is to find out the impact of internal audits on the financial performance of commercial banks in the UK. The internal audit criteria, professional skills, internal control and internal audit were conducted inside from the perception of independence. In this research, one senior manager in the economics department was selected. As the survey is the best suitable tool for collecting information, the researcher conducted a survey to each member of the target people. In this study quantitative analysis and regression analysis were applied as data analysis systems. For analyzing the data descriptive statistics, for example, mean, standard deviation and frequency distribution were used. Data was presented in tabulated form in order to simply of understanding and explanation.
This finding discloses that there is a positive relationship with the economic performance of the internal audit standards, internal audit freedoms, professional capability and internal controls. The study showed that a unit increase in internal audit criteria will bring about the enhanced financial performance of commercial banks, increasing the unit’s independence of internal audit will increase the financial performance of the commercial banks. A unit increase in professional capability would bring about an increase in the financial performance of commercial banks and an additional unit increase in internal control would bring about enhance in the financial performance of commercial banks. According to the study, overseeing the management of commercial banks of the UK, internal monitoring, internal audit, professional skills and internally controlled practices for example internal audit procedures should be taken to improve the financial performance of the bank.
1.1 Background of Study
Internal audit is one of the key functions of organizations, most importantly in commercial banking sectors. According to Fish (2012), internal auditing is the independent, objective assurance and consulting activity which is performed in adding value and developing the performance of the organization. Lindsay and Hawkes (2014) said generally internal in business is used as an administrative process that includes an examination of documents, measuring properties, and reporting to the Board of Directors, Management, or External Auditors. While delivering services, organizations should show responsibility in terms of shareholders’ capital and competence. Pickett (2015) stated that at present more capability and professionalism are demanded from the internal audit by the organizations. In order to reduce and manage risks, limited resources must be organized more economically.
The internal audit department makes the necessity for the organization to be more sensible in developing the technology sector which enables the organization to track and analyze data at a constant rising speed. According to Pickett (2015), the different organization has different internal audit and making a change to modern internal audit can be a considerable responsibility. The evolution from simply certifying fulfillment with rules and regulations to actually delivering additional value needs more than just organizational changes. The employees of many bank institutions are not fairly paid and motivated and authority practices are useless leading to benefit mismanagement (Ramamoorti, 2015). There is a thought spread all over the world that the Internal Audit activity is able to give the supreme services to management in the conduct of their duties. Now the importance of internal audit in developing management of assets is realized by the commercial banks (Basel Committee, 2014).
On the other hand, according to Investopedia (20160, financial performance refers to the subjective measures of how effectively businesses can use their assets and can generate profits. Internal audit has a significant impact on financial performance. A large number of internal audit experts agree about the connection of efficient internal audits with developed financial performances. Bou (2014) stated that an efficient internal audit service assists in decreasing overhead; identifying ways to develop competence and exploit contact to potential losses from insufficiently secured company resources. Santander Bank is one of the major leading banking institutions in the UK banking sector. It has been facing challenges to gain expected financial performance. The key challenges come from its competitive rivals (including HSBC, Barclays Plc, Royal Bank of Scotland Group, Lloyds Group, and Nationwide Building Society) and business external environmental factors (Statista, 2016). Therefore, improving the effectiveness of internal audit functions in Santander Bank can play a significant role to improve financial performance in a competitive marketplace. Therefore, improving the effectiveness of internal audit functions in Santander Bank can play a significant role to improve financial performance in competitive marketplace………………………………
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