Analysis on the absence of internal audit in the case of SMEs in the Maldives / Aminath Reema Rasheed

Abstract

This study is carried out to understand why SMEs in the Maldives do not carry out internal audits even though it would benefit them massively. The research also analyses the effectiveness of the internal control system of SMEs in Maldives. Further, this research examines the difference between companies who performs regular internal audit from a company that does not.
The Maldives is a chain of islands in the Indian Ocean and the principle source of income comes from tourism. However; the business sector of the country grows rapidly, which increases the importance of internal audit and good governance procedures. This research is carried out with the intention to increase awareness on the importance of internal audit in the Maldives and provide SMEs with information on the importance of good governance and mechanisms to structure the internal controls of the business effectively.
This research is carried out using mixed method approach and uses primary data. Since the auditing profession and industry in Maldives in quite young, this method would give a better insight and broader understanding of the reasons why SMEs do not implement a regular internal audit function. It would also enable auditors to understand and address the concerns of businessmen.
The findings of this research contradict between quantitative and qualitative analysis in terms of independent variables of cost, confidentiality and management perception. The variances mainly arise due to lack of technical knowledge on internal audit and internal control systems by the owners and management of SMEs in the Maldives. However; the literature review illustrates the five independent variables used for this research are highly correlated with the dependent variable internal audit set up.
This research also addresses the lack of academic research and literature available on internal audit and governance procedures in the context of Maldives. Hence; this research provides a significant contribution to the existing literature on internal audit, effectiveness of internal control systems, good governance, risk management and fraud.
This research covers three important areas in the field on internal audit which has previously not been addressed in the context of SMEs in the Maldives. It provides an understanding on the reasons why internal audit is not carried out by SMEs, effectiveness of internal controls and benefits of internal audit for companys s who carry out the function regularly. Hence; it provides massive knowledge and fundamental information for business to carry out their operations smoothly and maximize profit and further assists auditors to strengthen the auditing profession and industry in the Maldives