The impact of internal controls on the quality of external audit and financial information : Case study of Belgian higher education institutions

Abstract

The research investigated the impact of internal controls on the quality of external audit and financial information, focusing on higher education institutions in Belgium. Internal controls are processes, rules, and mechanisms organizations implement to increase the chances of meeting performance and compliance objectives and are primarily of three types. Detective internal controls focus on uncovering irregularities and errors that may have already occurred to mitigate the associated impact on organizational performance. Preventive controls attempt to stop or deter unwanted outcomes before they occur, signifying that they are the most cost-effective risk management approaches. Corrective controls are meant to correct irregularities and errors detected during regular checks. Belgian higher education system follows the Bologna Process agreements to comply with European quality standards. The country has a highly decentralized education system, where communities control most administrative and management activities. The phenomenon signifies that they adopt varied internal controls that affect the quality of external audit and financial information. The differences make evaluating the institutions' compliance with establishing accounting standards challenging, increasing the risk of misappropriation and ineffective decision-making. Hence, this study’s specific objectives included to establish the effect of the internal control environment, the influence of detective controls, impact of corrective internal controls, and determine the effect of preventive internal controls on the quality of external audit and financial information among higher education institutions in Belgium. To achieve the objectives, the study utilized case study research design and a quantitative approach to explain the association between variables, targeting workers in the accounting and audit departments in Belgian higher education institutions. Questionnaires were used to collect data from a sample of 296 respondents using online surveys and the data analyzed through descriptive and inferential statistics. The findings indicate that all the internal controls except preventive measures significantly predicted the quality of external audit and financial information among higher education institutions. Besides, they showed that there was weak, positive correlation between internal control environment robustness and the dependent variable. Demographic characteristics including occupation, type of institution, experience did not have statistically significant mean differences. The findings challenge Belgian higher education sector stakeholder to continuously improve their internal controls and nurture a culture of accountability and transparency.