The Effects of the Qualitative Parameters of Internal Auditing Works on the Preferences of Investment Funds’ Analysts

Abstract

This article documents the direct relation between the internal auditing reports that are revealed to the investors with facts of fraud in an entity and investor confidence for investing such companies. The contents of the internal auditing reports, which have been prepared specifically in response to the fraud signal in a company, provide evidence that there is a considerable correlation. This paper argues that the observed correlation fluctuates depending on the contents, independence, and objectivity of an internal auditing report. The strength of the established correlation varies according to the provided confidence to investors. With the said confidence, the investors decide to retain their investments in a company, to invest new funds in a company, not to invest any funds, or to withdraw invested funds from a company. The flow of the preferences of investment fund experts is affected: (i) If the internal auditing process and report is concluded by experienced auditors; (ii) If the internal auditing work is processed objectively; (iii) If the internal auditors act independently during the auditing process.