Research Objective: This study investigated the impact of internal auditing on the financial performance of microfinance banks in Enugu capital city, covering the period from 2013 to 2023. Specifically, it evaluated the influence of internal audit quality, measured by audit report lag, audit fee, audit tenure, and audit firm size, on financial performance, which was proxied by return on assets, earnings per share, net profit margin, and dividends per share.
Methodology: The study utilised secondary data obtained from the annual reports of six microfinance banks, which were selected from a population of 18 banks in Enugu capital city using a judgmental sampling technique. Ordinary least square regression analysis was employed to predict the relationship between internal audit quality variables and the financial performance of the banks.
Findings: The regression analysis revealed that audit report lag, audit tenure, and audit firm size have a significant positive effect on the financial performance of the listed microfinance banks. However, audit fees and earnings per share showed an insignificant relationship with financial performance. The model explained approximately 73% of the variation in the financial performance of microfinance banks in Enugu, indicating a strong relationship between internal audit quality and financial outcomes.
Conclusion: The study concluded that audit report lag, audit tenure, and audit firm size have a significant positive impact on the financial performance of microfinance banks in Enugu. These findings underscore the importance of strong internal audit practices in driving profitability and efficiency in financial institutions.
Recommendations: The study recommended that efforts should be focused on creating an environment that enhances the sustainability of internal audit quality in both private and publicly listed companies. This will help foster good corporate governance practices and improve overall profitability in the banking sector.
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