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1. Introduction
The past few years have been marked by a succession of high-profile financial scandals which have drawn attention on the need for effective corporate governance (Endaya and Hanefah, 2016; Sultana et al., 2015; Khlif and Samaha, 2014). Consequently, both regulators and scholars have increasingly promoted the pivotal role of internal controls in ensuring the reliability of financial reporting process (Salehi and Bahrami, 2017; Khlif and Samaha, 2016; Lin et al., 2014; Bedard and Graham, 2011). According to Krishnan (2005, p. 650), an effective internal control system represents an important factor in achieving good quality financial reporting.
Although top management continues to be recognized as the ultimate responsible for maintaining a firm’s internal control system, “support for management in the discharge of these responsibilities is a legitimate role for internal auditors” (Institute of Internal Auditors IIA, 2004, p. 3).
Nonetheless, despite the pivotal role played by internal audit function (IAF) in ensuring the oversight of internal control process, research examining the influence of firm’s IAF characteristics on internal control quality is scant, with the exception of Fadzil et al. (2005) and Lin et al. (2011) which provide evidence that internal control weaknesses disclosure is negatively associated with the IAF activities and practices.
However, Lin’s study is limited in two ways. First, the IAF attributes and activities measures used do not take into consideration certain aspects in particular those relating to the working relationship between internal audit and the audit committee. Second, findings from this study are limited to the USA and do not take into account specific conditions in emerging countries where the governance practices may be weak (Klibi, 2015; Khlif and Samaha, 2014). As such, research into the association between IAF characteristics and internal control quality in an emerging country, as Tunisia, merit scholarly attention and motivates this study. Tunisia is the northernmost country in the African continent. Its gross domestic product per capita is $3.6, and its unemployment rate is about 13 per cent in the first quarter of 2017 (International Monetary Fund, 2017). Tunisia is also among the first emerging countries that have thought to legislate on corporate governance (Klibi, 2015). In 2001, a regulatory framework for audit committees was enacted for the first time. This law stipulates that...