Internal Audit Practices and Financial Performance: Evidence from Deposit Money Banks in Nigeria

Abstract

This study investigates the impact of internal audit practices on the financial performance of Deposit Money Banks (DMBs) in Nigeria. Despite the critical role of internal audits in promoting transparency and risk management, many Nigerian banks continue to face weak internal controls, limited auditor independence, and poor integration of audit insights into decision-making. Using an ex-post facto research design, the study analyzed secondary data from audited financial statements of 12 purposively selected DMBs listed on the Nigerian Exchange Group from 2016 to 2023. Principal Component Analysis (PCA) identified internal audit size, bank size, and internal control monitoring as key audit variables. Panel regression results showed that internal audit objectivity had a statistically significant positive effect on financial performance, while audit competence, independence, and audit size had positive but insignificant effects. Bank size had a notable positive influence, whereas IT proficiency negatively impacted performance, likely due to cost inefficiencies. The study concludes that strategically aligned internal audit practices significantly affect financial outcomes. It recommends enhancing auditor objectivity, prioritizing audit quality over size, adopting cost-effective IT solutions, and integrating audit findings into strategic planning to support long-term performance and regulatory compliance.