Internal auditor competence and internal control: Improving internal audit quality to prevent fraudulent financial statements

Abstract

State-Owned Enterprises (BUMNs) in Indonesia are faced with challenges due to the weak prevention of fraudulent financial statements. The prevention of fraudulent financial statements has long been a subject of discussion. Therefore, this study aimed to investigate the relationship between internal auditor competence, internal control, and internal audit quality in efforts to prevent fraudulent financial statements. Respondents in this research were 475 people from 33 BUMN in Indonesia. Data were then collected through online surveys using Google Forms and direct visits to several BUMNs, and subsequently analysed using SEM-PLS. The results showed that internal auditor competence had an impact on internal audit quality and the prevention of fraudulent financial statements. Internal control influenced both internal audit quality and the prevention of fraudulent financial statements. Moreover, internal audit quality affected the prevention of fraudulent financial statements, while mediating the effects of internal control on preventing fraudulent financial statements. This research provides a practical contribution, which can contribute to BUMN in Indonesia in improving the prevention of fraudulent financial statements. Furthermore, it contributes to increasing the confidence of investors and other stakeholders in investing in BUMN in Indonesia.