The Impact of Internal Audit Committees’ Practices on Enhancing the Independence of Internal Auditors in Jordanian Commercial Banks

Purpose: This study aim to explain the impact of the audit committees' practices on enhancing the independence of internal auditors in Jordanian commercial banks from the perspective of external auditors. Design / methodology / approach: The statistical descriptive approach was used, the data were collected through a questionnaire designed by the researcher, which targeted the external auditors of (90) individuals. The study included four axes, three of which were allocated to measure the internal audit committees' responsibilities, functions and powers, while the fourth axis was devoted to measuring the independence of the internal auditing bodies. Results: The study found that there is a statistically significant relationship to the internal audit committees' practices in enhancing the independence of the internal auditing bodies; also the role of the audit committees has been the main impact in enhancing this independence. Recommendations: the study recommends enacting and modifying laws to enhance the independence of the audit committees to supervise all matters related to internal auditors. Originality / Value: According to the researcher, this study is one of the first studies that dealt with the practices of the audit committees combined, therefore it is useful for researchers that motivating them to conduct further research on the practices of audit committees in other economic sectors.


Introduction
Commercial banks are considered an important source of the economy in the modern era through its role in steering the economic wheel for the societies they operate in, because in one hand, they provide funds from various sources and invest them in various economic activities on the other hand.
Therefore, there was a need for a party to monitor the work of these banks in order to ensure the preservation of these funds and protect them from manipulation, fraud and theft, and hence the need for a party that enjoys a certain level of independence from the management of the bank has emerged that works to perform that task, which is called the internal audit function.
As the internal auditor is considered as an employee of the bank's staff, and he is therefore not immune from the interventions of the management of his work, since he is under the authority of this management and executes its instructions as long as he is one of its employees, so there was an urgent need for a party that supports and monitors his work, and provides a kind of protection and independency from the bank's management, so that he can carry out his functions.
To ensure that the internal auditor performs his work efficiently and effectively away from any management interventions, most legislations and laws in different countries of the world, in addition that all bodies and professional complexes have committed and stipulated the necessity of the existence of internal audit committees (IACs) in all banks that enjoy many powers, responsibilities and functions to exercise their job thereby enhancing the independence of the internal auditor. 1978), while (Mallin, 2003) defined it as: "A committee composed of non executives directors which is responsible for assessment of the performance of the management board and make sure that the executive decisions have been issued individually, in addition to conduct a periodical evaluation of the internal control system, also contributing in determining the missions and responsibilities for internal and external audit", while (CICA, 1992) defined as: "A committee composed of non executives' managers that their responsibilities concentrated on auditing the annual finance menus before submitting them to the management board. The audit committee is considered as a link between auditors and the management board, its activities summed up by nominating the external auditor and auditing the scope and the results of the auditing, as well as evaluating the internal control system of the company and all the published financial information".
(Marria n, 1988) defined it as: "A committee composed of three to five directors who are not responsible of any executive responsibilities of the financial management and most of its work concerns auditing financial reports, evaluating the effectiveness of the internal control and accounting system of the company, in addition to discussing the results of the auditing with the internal and external auditors and submit recommendations about nominating and identifying the fees for the external auditor". (Sarbanes-Oxley Law, 2002) law indicated a set of requirements that must be provided in the member of the AC, such as experience and scientific qualification, in addition to the familiarity with the nature of the functions of the AC and its responsibilities, although there is no consensus on one and a specific definition of this committee, but there is a consensus on some special features of its composition and functions, including: 1. A committee issued from the management board and composed from non-executive members.

2.
A professional committee with a high degree of experience and knowledge of accounting and auditing.
3. Conducting supervision and control on a group of internal and external parties at the company.
4. There is interference between its responsibilities towards the internal parties and it works to coordinate between those parties. 5. Aims to protect the rights of shareholders.

The Role of Audit Committees in Supporting the Effectiveness of Internal Audit
AC performs an important role in increasing the effectiveness of internal audit and work for its improvement and development, specially, that internal audit operations have a large impact on all operations of the company, as well as the function of internal audit is considered the most important parts of the internal control system applied at the company.
Given to the important role that is played by the internal audit function in hindering the manipulation and discovering errors, and because the internal auditors are employees inside the company and have a full acknowledge of the nature of company's operations and the applied accounting policies, many bodies concerned with the necessity of the AC to follow up internal audit plans and choose the appropriate party to perform the auditing and hold meeting with the head of internal audit to solve the discovered errors and solve them, (Suleiman, 2006), therefore, the AC should pay attention to the internal audit, since there is mutual relationship between them and they affect each other.
In order to accomplish the internal auditors their role effectively, they should enjoy the independency, so that the existence of AC in the company would consolidate and promote the independence of internal audit, which start with nominating a responsible auditing team and study their work plan and the scope of examination and reports which are issued by them, as well as provide the necessary resources for them and solve the problems which may arise with management and increase the interaction and coordination with the external auditor (Al- Momani 2008, p. 470), in the same context (Kevin, 2000, p. 42), sees that the first step at strengthen the independence of the internal audit is represented in that its activities should not be linked with senior management of the company, because that will decrease the confidence of users of finance statements in the audit works ability to avoid cheating, where the efficiency and objectivity of these works enhanced when hiring the internal auditors and identify their rewards and dismissing them are within the power of the AC, and their reports should be oriented to this committee in order to study and evaluate it and raise notes and recommendations to the management board.
As for independence, it was defined by (IIA , 2001) in standard No. 1100 as: To liberate from the conditions and circumstances which threatening the capacity of internal audit or the executive director of auditing to undertake of internal audit responsibilities in a nonbiased manner, and to achieve a possible investigation degree of independence necessary for effective performance of the responsibilities of internal audit activity, furthermore, the executive director of the internal audit must have the ability to access directly without any restrictions to the senior management and to the board, and the resources that threatening the independency on the internal auditor level and on the level of audit tasks and on functional and organizational levels should be controlled with.
(IIA, 1999) defined internal audit as: An advisory, objective, independent and reassured activity, aims to increase the operations of the entity's revenues and improve them. The internal audit helps the entity in achieving its objectives through an organized methodology to evaluate and improve the effectiveness of the risk management, control and governance.

Audit Committee Functions
AC conducts many mission regarding supporting the function of internal audit that is represented in the following (Dahdouh, 2008, p. 270): 1. Assessment of the effectiveness of internal audit and its quality as a part of internal control system that is conducted according to professional performance standard.
2. Following the regulations and systems related to internal audit tasks and approve them.
3. Checking internal audit performance strategy and its annual plan and approve them.
4. Consolidation of the independence of the internal audit through: a.
Appointing internal audit director and dismiss him. b.
Making sure that internal audit has adequate resources to maintain its operations.
c. The freedom of the audit director to contact the AC to discuss any important issues. d.
Making sure that there are no restrictions on internal auditors when they implement their duties.
e. Participation in hiring, promoting and substitute the audit team.
5. Checking the internal audit results, in particular that which has an important influence, such as the illegal actions and weakness points in internal control. 6. Checking the vocational level for internal auditors and the extent of their competence in implementing their responsibilities.
7. Coordinating between internal and external auditors' work that lead to the improvement of communication between them and increasing the quality of audit operation and achieve integration between them.
As mentioned above, the importance of the role of the AC is obvious in supporting the Internal audit operations through the supervision of the management of internal audit and study the work plan, support the independence of audit employees and maintain the communicating lines between the management board and external audit.

Audit Committee Responsibilities
AC responsibilities include conducting basic activities, (KPMG, 2004) such as: 1. Assessment of the management procedures in determining fraud risks and prevent them, including measures which implemented by the management, and is designed for discovering any fraud and prevent it.
2. Supervision on internal control applied on the management when preparing financial reports and searching for any possibility of infringement of the management or the inappropriate use of this control.
3. Comparison of the reasonability of the financial results with the previous or expected results and conduct quarterly analysis of the main reserves.
4. Assessment of management operations and its procedures, in addition to documenting all important estimates that are used in the process of preparing financial reports.
5. Assessment of the management input and documenting it regarding processing daily records which entered periodically and the process of closing the financial reports cycle.
6. Develop a program for the staff and others to report any fraud and immoral conduct.
7. Submit other visions and guidance about implementation or strengthen measures to prevent fraud.

Audit Committee Powers
The Jordanian Banking Law issued in 2000 refers to the powers of the AC. Article (32) of the Law states as follows: A. A committee called (Audit Committee) shall be formed in each bank by a decision of its board of directors composed of a chairman and two members elected by the Board of Directors of the Bank amongst the members ijbm.ccsenet.org International Journal of Business and Management Vol. 13, No. 5;2018 who have no executive functions within the Bank. The Committee shall continue its work for the duration of the Board membership, and the committee shall exercise the following functions and powers: 1. Monitor the comprehensiveness extent of the external audit of the bank's work and to verify the existence of coordination between works of the external auditors in case of existing more than one auditor.
2. Review the observations contained in the reports of the Central Bank and the reports of the external auditor and follow up the actions taken thereon.
3. Study the annual internal audit plan, review the observations contained in the inspection reports and the internal audit's reports and follow up on the taken procedures.
4. Review the financial statements of the bank before presenting them to the Board of Directors, in particular, verifying the Central Bank's orders regarding the adequacy of allocations taken to meet doubtful debts and the perquisites of the securities in portfolios and expressing an opinion on the bank's non-operating debts or proposed to be considered as debt-impaired.
5. Ensure the accuracy, safety and compliance of accounting and control procedures.
6. Ensure full compliance with the laws, regulations and orders that the bank works are subjected to.
7. Study any issue presented to it by the Board of Directors of the bank or any issue which the committee deems necessary to be discussed and to express an opinion thereon.

B.
The committee operates under the supervision of the Board of Directors and submits to it its reports and recommendations of the results of exercising its functions.

Previous Studies
Based on study limitations, the researcher suggested using the studies related to some of the study variables as follows. To identify the responsibilities of the AC and its role in supervising the preparation of financial reports.
It found that 100% of the ACs are responsible for reviewing the annual financial reports.
Goodwin (2003)  Found the level of interaction between an AC and internal audit was greater when the AC was comprised of independent directors.

Data and Methodology
This chapter describes the research methodology in this study. The chapter included the research questions and hypotheses, design of the study, population of the study, sample, and the instruments used in this study.

Study Population
The study population consists of the external auditors practicing auditing profession in Jordan, they are: 402 auditors from (Jordan Association of Certified Public Accountants, JACPA). In order to achieve the objectives of the study, a purposive sample of 90 auditors was selected to audit the accounts of the commercial banks in Jordan, 87 questionnaires were retrieved and thus the recovery rate was 97%.

Study Tools
Researcher designed questionnaire to gather primary data from external auditors after returning to the theoretical literature, and earlier studies related.
The survey consisted of (46) item represented the study variables, all items of the questionnaire were measured by a 5-point Likert scale with anchors ranging from 1=strongly disagree to 5=strongly agree.
Then the cells have been identified along the five Likert scale (lower and upper limits) as follows: • Arithmetic average was considered normal (default) is the answer (3) and represents a "neutral." • The term has been calculated according to the following equation: higher weight minus the lowest weight range = ← (5 -1= 4)

•
The division averages for answers to five degrees represent a degree of agreement (strongly agree, agree, neutral, disagree, and strongly disagree).

•
The length of the cell was calculated according to the following equation: Range ÷ number of levels = length of the cell 4 ÷ 3 = 1.33

•
Added value of the length of the cell (1.33) to the beginning of the scale (the lowest value in the scale, namely, (1) to determine the upper limit for the first cell, and thus becomes the length of the cells as shown in Table 3.

Statistical Treatment
The study has analyzed collected data via Statistical Package for the Social Sciences (SPSS) and to achieve the objectives of this study as follows: 1. Frequencies and percentages: where it was used to describe the social data for the study sample of respondents.
2. Arithmetic average and standard deviation: where they were used to judge the response of the study sample on the variables of the study.
3. Cronbach alpha reliability coefficient and factor analysis in order to verify the reliability and validity of research tool.
4. Multiple regression method: To measure the effect of the relationship between more than one independent variable and the dependent variable.

5.
Stepwise regression method: To compare the change in explanatory power of models by adding variables, in order to determine which variable.

Reliability Tests
To test the reliability of study tool, Cronbach's Alpha was used and the results revealed a Cronbach's alpha coefficient was (0.848) for all items, and values of (α) range (0.743 to 0.825), which refers the questionnaire is reliable. The values of (α) of the study variables of the study were as in Table 4.

Analysis of the Responses of the Study Sample Members
The responses of the sample were presented using statistical descriptive measures; the arithmetic means, standard deviations, grade and materiality were calculated.
First: Internal Audit Committee Practices, including: We note from table 5 that the overall scale of the functions of the Audit Committee is high, where the overall average reached (3.852) with a standard deviation of (0.829), the paragraph (To be sure that audit committees will examine the internal audit findings that have legal effect) ranked first with an arithmetic mean of (4.103) and with a high relative significance, while the paragraph (To be sure that there are no restrictions on auditors in carrying out their duties) was in the last rank with an arithmetic mean of (3.690) and with a high materiality. We note from table 6 that the overall scale of the responsibilities of the Audit Committee is high, where the overall mean was (3.871) with a standard deviation of (0.702),the paragraph (To be acquainted with the comparisons of current financial results with the previous, subsequent and expected results) ranked first with a mean of (4.023) and with a high relative significance, while the paragraph (To be sure that the audit committees have established programs for staff and auditors to report on fraud and immoral behavior) ranked last with a mean of (3.713) and with a high relative significance. We note from table 7: That the general measure level of the paragraphs of the powers of the ACs is high, where the arithmetic mean had reached(3.836) with a standard deviation of (0.731), the paragraph (To be sure that ACs will verify the existence of the non -functioning debt or bad debt) was in the first rank with an arithmetic mean of (4.034) with high relative significance, while the paragraph (To be sure that the ACs review the observations contained in the reports of the Central Bank, the external auditor and the measures taken thereon) was at the last rank with arithmetic mean of (3.552) and with an average materiality.

The Powers of the Audit Committee
To compare the practices of internal ACs, the following table was prepared: ijbm.ccsenet.org International Journal of Business and Management Vol. 13, No. 5;2018  The results of table 8 indicates that the level of internal audit committees' practices in terms of materiality is high, the arithmetic mean reached (3.853) with a standard deviation of (0.587), also the table showed that (the responsibilities of the Audit Committee) came in the first rank with an arithmetic mean of (3.871) and a standard deviation of (0.702), with a high relative significance, while (the powers of the audit committee) ranked last with an arithmetic mean of (3.836) and standard deviation of (0.731), with a high materiality. We note from table 9 that the general measure of the independency of internal audit level paragraphs is high, where the arithmetic mean reached (3.885) with a standard deviation of (0.808),the paragraph stated that(The degree of quality of internal audit reports contribute in strengthening the independency of the internal audit) ranked first with an arithmetic mean of (4.011) and with a high relative significance, while the paragraph (The confidence of users of financial statements in fraud prevention and fraud procedures will enhance the independence of internal audit) ranked last with an arithmetic mean of (3.690) and with high materiality.

Test the Hypotheses of The Study
The main hypothesis of the study was tested using multiple regression analysis; and the following is the results of testing hypothesis:  Table 10 shows the existence of moral effect of (practices of internal ACs) approved to (enhance the independence of internal audit), where the value of (F= 40.258) at significant level of (SigF= 0.000) which is less than (0.05), the value of correlation coefficient (R = 0.715) indicated the strength of the relationship between the independent variables and the dependent variable, the value of coefficient of determination (R 2 = 0.511 ) also indicated that a ratio of (51.1%)of variance in (internal audit independency) can be explained by the variance in the (internal ACs practices) combined together, with any other factors remaining constant.
Therefore, we reject the main nihilism study hypothesis and accept the alternative hypothesis which is stated: "There is a statistically significant impact on the practices of internal ACs on the independence of internal audit services in the Jordanian commercial banks". Test H03: There is no impact on the powers of the internal ACs on enhancing the level of independency of the internal audit services in the Jordanian commercial banks.
We note from table (10) above, we note that regression coefficients indicated that the value of coefficient at (internal AC powers) reached (B =0.293), which is a significant impact, where the value of (t) has reached (3.447) at a significant level of (Sig = 0. 001), therefore we reject the third hypothesis, and accept the alternative one which states that: "There is an impact of the powers of internal ACs in enhancing the level of independency of the internal audit services in the Jordanian commercial banks".
To demonstrate which of the internal ACs practices had the most significant impact on enhancing the independence of the internal audit bodies, a stepwise regression analysis was performed, and the results were as follows: Table12 The results of the regression analysis show the order of entry of variables in the regression model, which represents the impact of internal ACs practices on enhancing the independence of the internal audit. It was found that (the responsibilities of internal ACs) ranked first with (34.4 %) of the dependable variance (independency of internal audit), and when adding the dimension of (The functions of internal ACs) in the second model, the proportion of interpretation increased to(43.9%),and it was increased to (51.1%) when we add(the powers of committees of internal audit), it was also found that the impact of the variables had a significant impact at a level of significance less than (0.05).

Conclusion
Through testing hypothesis, the study found the following results: 1. There is a statistically significant impact of the internal ACs practices on enhancing the independence of the internal audit bodies in the Jordanian commercial banks.
2. The responsibilities of the ACs have had the most importantly impact in enhancing the independence of the internal audit bodies, followed by the impact of the functions of the internal ACs, while the powers of the audit committees came in last.
3. The relative importance of the variables of the study was: The responsibilities of the ACs, the functions of the ACs, the powers of the ACs.

Recommendations
Based on the results of the study, the researcher recommends the following: 1. The need to enact and amend laws to ensure that the ACs have full powers to supervise all matters related to the internal audit bodies in order to enhance their independence.
2. ACs needs to take further action to strengthen its responsibilities and functions with a view to enhancing the independence of the internal audit bodies.
3. Urge researchers to conduct further research on audit committee practices in the industrial, commercial and service sectors.