The role of internal audit in the risk management process: A developing economy perspective

• Date: 01 October 2020
• Published date: 01 October 2020
• DOI: http://doi.org/10.1002/jcaf.22471
• Author: Diana Weekes‐Marshall

BLIND PEER REVIEW

The role of internal audit in the risk management process:

A developing economy perspective

Diana Weekes-Marshall

Department of Management Studies,

University of the West Indies, Cave Hill

Campus, Cave Hill, St. Micheal, Barbados

Correspondence

Diana Weekes-Marshall, Department of

Management Studies, University of the

West Indies, Cave Hill Campus, Cave Hill,

St. Micheal, Barbados.

Email: diana.weekes-marshall@cavehill.

uwi.edu

Abstract

Companies in developing economies have faced a myriad of risks. Many of

them due to external related party exposures and the potential risks of associ-

ated contagion. The function of Internal Audit (IA) has emerged as a signifi-

cant governance mechanism in the management of risk in developing

countries. This exploratory study sought to identify the role of IA across the

developing economy of Barbados. Based upon the results of an online survey

administered to the Barbados chapter of the Institute of Internal Auditors

(IIA), the paper examines IA involvement in the risk management process

(RMP) of several types of companies. Findings reveal that IA is critical to the

RMP and that it needs to be enhanced through improved risk education, expo-

sure, and training, along with increased support from Audit Committee and

Senior Management. The generalizability of the conclusions is however limited

since the sample was drawn from a developing country. The paper adds to the

existing literature as it highlights the challenges of IA as it develops in a devel-

oping economy while also dealing with their integration into the RM frame-

work. Practical key take-away from the paper suggests that (a) RM and the

IAF are in a developmental stage primarily due to the need for increased expo-

sure and understanding of international risks and best practices. This is espe-

cially since most companies maintain extensive international ties and are

highly susceptible to contagion. (b) For an integrated RM system to be success-

ful, the management of risk must be owned at all levels throughout the organi-

zation and not just at the Board of Directors and Executive Management, and

(c) improved communication of roles and accountabilities especially for IA

should be instituted to ensure proper diffusion of risk culture within the

organization.

KEYWORDS

Barbados, corporate governance, internal audit, risk management

1|INTRODUCTION

Before the 2008 global financial crisis (GFC), academics

and professionals were focused on corporate governance

(CG) as the sole mechanism to right the wrongs of

conflicts as they surfaced through agency problems.

However, economic volatility experienced around the

world after the GFC has brought into question firms risk

management (RM) techniques. This has caused RM to

take precedence in more studies being conducted

Received: 20 August 2019 Revised: 31 July 2020 Accepted: 18 August 2020

DOI: 10.1002/jcaf.22471

154 © 2020 Wiley Periodicals LLC J Corp Acct Fin. 2020;31:154–165.wileyonlinelibrary.com/journal/jcaf