Professional skepticism, ethical leadership, audit committee characteristics and internal audit effectiveness in Pakistan's listed companies

Internal audit function is a critical component of corporate governance mechanisms, and researchers have argued that its effectiveness is of utmost importance in ensuring better corporate performance. In light of social contract theory, social learning theory and agency theory, this study attempts to contribute to a better understanding of the role of internal judgment, the search for knowledge, interpersonal understanding, self-esteem and autonomy), ethical leadership and audit committee characteristics (namely audit committee size, audit committee independence, audit committee expertise, and audit committee meeting frequency) as the drivers for internal audit effectiveness among companies listed in Pakistan Stock Exchange. Following a cross-sectional study design. Two sets of questionnaires, one for the chief internal auditors and the other one for the general managers, were distributed to 400 listed companies selected using simple random sampling, of which, 162 completed sets in all respects, with a response rate of 41%, were received back. The data were analyzed using PLS-SEM. The results show a positive influence of questioning mind, suspension of judgment, the search for knowledge, autonomy, ethical leadership, audit committee size and audit committee meeting frequency on the internal audit effectiveness of the listed companies. The study finds no significant relationship between interpersonal understanding, self-esteem, audit committee independence and audit committee expertise on the internal audit effectiveness. As there has been limited research in the field of internal audit effectiveness in Pakistan, the findings would encourage Pakistani organizations to concentrate on the issue of internal audit effectiveness and provide a basis for further research in the Pakistani context.