The effect of internal audit function on financial reporting quality of small and medium enterprise (SMES) in Malaysia.

Financial reporting quality is crucial for an organisation. Truth and transparency help the management and stakeholders make future business development and investment decision. The main aim of this study is to examine the effect of internal audit function on the financial reporting quality of small and medium enterprises (SMEs) in Malaysia. Specifically, this study used auditor’s competency, auditor’s independence and auditor’s information technology (IT) usage as measure of the internal audit functions. Thirty (30) samples from distributed questionnaires are used and analyzed in this study. Those samples are from those individuals working with SMEs in Malaysia and conducting internal audit functions. The finding showed a significant relationship between the auditor’s competency, auditor’s independence information technology usage and financial reporting quality. This study also discussed that all the factors mentioned have significant positive relationship between the independent and dependent variables. The practical implication of this study is that the SMEs could present a quality financial reporting to the stakeholder and also to banking institutions for their business developments. The limitations of this study are that a small scale of respondents is used in data collection and analysis besides concentrating on the SMEs in Malaysia.