The relationship between internal audit function quality and earnings quality: the moderating effect of CEO power

Figures & data

Table 1. Sample selection process.

No.	Selected Firms	Final population	Sample size	Firms with missing data	Available data
1	Financial Institutions	26	15	0	15
2	Micro Finance Deposit taking Institutions	5	3	0	3
3	Credit Institutions	4	2	0	2
4	Insurance Firms (Life and Non-Life)	30	18	0	18
5	Micro-Insurance firms	3	2	0	2
6	Licensed Insurance loss assessors, adjusters, surveyors and risk managers	25	15	3	12
7	Licensed Insurance Brokers (Re-Insurance brokers and Insurance brokers)	47	27	0	27
8	Licensed Re-Insurance Firms	4	2	0	2
9	Licensed Health membership Organization	5	3	0	3
10	Listed Firms	9	5	0	5
11	Telecom Firms	20	12	2	10
12	Pension Scheme	66	38	25	13
13	Electricity Firms	3	2	0	2
14	Coffee Export firms	37	22	0	22
	TOTAL	284	166	30	136

Source: Primary Data.

Table 2. Respondent and firm characteristics.

Respondent characteristics			Firm characteristics
Gender	f	%	Capital Structure	f	%
Male	119	68.4	Equity	81	60
Female	55	31.6	Equity and Loans	53	39
Total	174	100	Loans Only	2	1
Age	f	%	Total	136	100
Less than 35 years	63	36.2	Firm Age	f	%
36–45 Years	74	42.5	Less than 5 Years	12	9
46–55 Years	33	19	5–10 Years	26	19
Above 55 Years	4	2.3	11–15 Years	35	26
Total	174	100	16 Years and Above	63	46
Education	f	%	Total	136	100
Bachelors’ Degree	93	53.4	Auditor Type	f	%
Masters’ Degree	79	45.4	Big 4	65	48
PhD	2	1.1	SMPs	71	52
Total	174	100	Total	136	100
Professional Qualification	f	%	Firm ownership	f	%
CPA	109	62.6	Foreigners	64	47
ACCA	54	31	Indigenous Ugandans	72	53
CIA	10	5.7	Total	136	100
CFA	1	0.6	Board size	f	%
Total	174	100	Large	72	53
Length of Service	f	%	Small	64	47
Less than 5 Years	58	33.3	Total	136	100
5–10 Years	69	39.7	CEO Interlock	f	%
11–15 Years	26	14.9	Interlocked	101	74
16 years and above	21	12.1	Not Interlocked	35	26
Total	174	100	Total	136	100
Position	f	%
CFO	130	74.7
CIA	44	25.3
Total	174	100

Source: Primary data.

Figure 1. The Conceptual Frame work.

Source: Authors’ Conceptualisation.

Table 3. Variable operationalisation and measurement.

Variables	Dimension	Operational definition	Measurement	Sample question
Independent Variable
Internal Audit Function Quality (IAFQ)	IA Competence	Internal auditor’s ability to perform tasks diligently and in accordance with professional standards (Endaya & Hanefah, 2016; Johl et al., 2013).	Respondents mean rank of 6 items of information included in the questionnaire on a four-point Likert scale	There is adequate continuous professional development for our internal auditors.
	IA investment	Amount of money invested in the internal audit itself (Endaya & Hanefah, 2016; Johl et al., 2013).	Respondent’s mean rank of 5 items of information included in the questionnaire on a four-point Likert scale.	Our internal audit receives sufficient budget allocation annually
	IA organisation status	Understood as independence and objectivity of internal auditors Endaya & Hanefah, 2016; Johl et al., 2013).	Respondent’s mean rank of 5 items of information included in the questionnaire on a four-point Likert scale.	Our internal audit usually informs the audit committee about any irregularity that takes place within the firm
	IA Roles	Roles performed by the internal auditors	Respondent’s mean rank of 16 items of information included in the questionnaire on a four-point likert scale	Our internal auditors spend sufficient time on financial audit
Moderating variable
CEO power	Structural power	Power derived from the organization hierarchy in terms of CEO relative compensation (Finkelstein, 1992).	Respondents mean rank of 4 items of information included in the questionnaire on a four-point Likert scale	Comparing with other senior members in this organization, our CEO enjoys much benefits.
	Ownership power	Percentage of share ownership the CEO has in a firm, in terms of him being the founder and the number of shares he has in a firm (Finkelstein, 1992).	Respondents mean rank of 4 items of information included in the questionnaire on a four-point Likert scale	Our CEO owns the highest number of shares in the firm
	Expert power	Understood in terms of CEO’s financial experience, number of positions served and CEO tenure (Finkelstein, 1992).	Respondents mean rank of 9 items of information included in the questionnaire on a four-point Likert scale	Our CEO has worked in this organization for a long period of time
	Prestige power	Understood in term of the CEO’s ability to manage uncertainty in an organization (Finkelstein, 1992).	Respondents mean rank of 7 items of information included in the questionnaire on a four-point Likert scale	Our CEO went to prestige Schools
	CEO formal power	Amount of CEO’s formal authority or power compared to the Board (Pearce & Zahra, 1991).	Respondents mean rank of 14 items of information included in the questionnaire on a four-point Likert scale.	Our CEO changes firm by-Laws
Dependent variable
Earnings Quality	Relevance	Extent to which earnings information is capable of creating a difference in the decisions made by the users (Conceptual framework for financial reporting 2018).	Respondents mean rank of 12 items included in the questionnaire on a four-point Likert scale.	Our reported earnings considered by our stakeholders in making varied decisions
	Faithful Represen­tation	Extent to which earnings information is free from errors, neutral, and unbiased (Conceptual framework for financial reporting 2018).	Respondents mean rank of 20 items of information included in the questionnaire on a four-point Likert scale	The earnings of this firm reflect the stewardship of the mangers
Control variables
Auditor type	A dummy variable is coded as 1 if the firm is audited by the BIG 4s and 2 if the firm is audited by SMPS
Firm Age	A dummy variable is coded as 1 if the firm is 5 years and below, 2 if the firm is 6–10 years, 3 if the firm is 11 years- 15 years, and 4 if the firm is above 15 years
Capital structure	A dummy variable coded as 1 if the firm employs only equity funding, 2 if the firm employs equity and loans financing, 3 if the firm
Board size	A dummy variable is coded as 1 if the firm board has more than 7 members and 2 if the firm board has less than 7 members.
CEO Interlock	A dummy variable coded as 1 if the firm CEO serves on the remuneration committee of the Board and 2 if the firm CEO has a family relationship with an individual who serves on the committee that makes compensation decisions and 3 if none.
Ownership	A dummy variable is coded as 1 if the firm is owned by Foreigners and 2 if the firm is owned by Indigenous Ugandans
Employee Size	A dummy variable is coded 1 if the firm has less than 100 employees and 2 if a firm has more than 100 employees

Source: Literature review.

Table 4. Summary of factors, validity and reliability tests for earnings quality and path coefficients -the measurement model for earnings quality.

Latent Variable		Factors	α		rho_A	CR	AVE
Earnings Quality				0.812	0.823	0.861	0.647
	Faithful Representation	FR11: The values that this company reports are usually accurate and justifiable.	0.753	0.857	0.857	0.897	0.636
		FR12: This firm’s accruals more closely correspond to the firm’s underlying economic activity.	0.790
		FR16: Different observers could reach consensus, although not necessarily complete agreement, that our earnings before tax (e.g.) is a faithful representation.	0.814
		FR17: Knowledgeable observers could reach consensus, although not necessarily complete agreement, that our earnings before tax (e.g.) is a faithful representation.	0.825
		FR18: Independent observers could reach consensus, although not necessarily complete agreement, that our earnings before tax (e.g.) is a faithful representation.	0.804
	Relevance	R03: I am sure if we want to borrow money, the lender will prioritize checking our earnings before interest and tax	0.847	0.742	0.760	0.852	0.657
		R05: Our earnings have persisted over a long period of time.	0.819
		R10: Users of our financial reports predict the future performance and financial position of a business based on our past performance.	0.763

Paths: Faithful Representation → Earnings Quality (B =.792, t = 21.512, p < .05); Relevance → Earnings Quality (B =.411, t = 13.033, p < .05)

Notes: FR = Faithful representation, R = Relevance.

Source: Primary Data.

Table 5. Summary of loading estimates, validity and reliability tests for internal audit function quality and path coefficients -the measurement model for internal audit function quality.

		Factors	α		rho_A	CR	AVE
Internal audit function Quality				0.911	0.915	0.925	0.729
	Competence	IAC01: Our internal audit function receives sufficient budget allocation annually	0.780	0.878	0.882	0.912	0.674
		IAC02: Our internal auditors acquire necessary skills to perform their duties	0.802
		IAC03:Our internal auditors have full knowledge of the transaction system of the entity	0.843
		IAC04:Our internal auditors have the necessary experience to execute their work	0.884
		IAC05:Our internal auditors have the required certifications	0.792
	Investment	IAI04:Our internal audit can easily detect severe internal control weakness	0.886	0.751	0.754	0.889	0.800
		IAI05:Our internal audit implements stronger procedures in evaluating internal controls	0.904
	Organization Status	IAOS04:This company’s internal auditors inform the audit committee of any irregularity taking place	0.889	0.741	0.741	0.885	0.794
		IAOS05:This company’s internal auditors communicate their findings effectively to management	0.894
	Role Performance	IARP12:Our internal auditors coordinate their work with respect areas of work schedule	0.761	0.863	0.863	0.901	0.647
		IARP13:Our internal auditors have all their working papers freely accessed by external auditors.	0.797
		IARP14: Our internal auditors have all their reports freely accessed by external auditors.	0.843
		IARP15: Our internal auditors have all their working papers freely accessed by regulator	0.774
		IARP16: Our internal auditors have all their reports freely accessed by regulator.	0.841

Paths: Competence → Internal audit Function Quality (β =.438, t = 17.619, p < .05); Investment → Internal audit Function Quality (β = .214, t = 13.072, p < .05); Organization Status → Internal audit Function Quality (β = .159, t = 6.703, p < .05); Role Performance → Internal audit Function Quality (β = .405, t = 16.413, p < .05)

Notes: IARP = Internal Audit Role performance, IAC = Internal Audit Competence, IAOS = Internal Audit Organization Status, IAI = Internal Audit Investment.

Source: Primary data.

Table 6. Summary of Loading estimates, validity and reliability tests for CEO Power and path coefficients -the measurement model of CEO power.

		Item scales	α		rho_A	CR	AVE
				0.840	0.850	0.868	0.684
CEO Power	Expert Power	EP04: This firm’s CEO is a skilled accountant	0.914	0.904	0.917	0.933	0.776
		EP05: This firm’s CEO is a acknowledgeable accountant	0.902
		EP06: This firm’s CEO has certifications in accounting	0.885
		EP07: This firm’s CEO is a finance expert	0.820
	Formal Power	FP09:This firm’s CEO makes decisions about future acquisitions	0.852	0.880	0.888	0.913	0.678
		FP10: This firm’s CEO makes decisions about future divestments	0.885
		FP11:This firm’s CEO makes decisions about capital acquisitions	0.785
		FP12: This firm’s CEO approves changes in capital structure	0.866
		FP14: This firm’s CEO plans for top leadership succession	0.719
	Ownership Power	OP01: This firm’s CEO owns the highest number of shares	0.821	0.823	0.824	0.883	0.654
		OP02:This firm’s CEO turnover is less involuntary	0.803
		OP03: This firm’s CEO is its founder	0.848
		OP04: This firm’s CEO is a relative to the founding family	0.761
	Prestige Power	PP01:This firm’s CEO enjoys the support of ruling government	0.772	0.800	0.804	0.868	0.623
		PP02:This firm’s CEO comes from a wealthy family	0.804
		PP03: This firm’s CEO comes from a powerful Tribe	0.805
		PP06: This firm’s CEO comes from a powerful family	0.774
	Structural Power	SP01: Comparing with other top executives, this firm’s CEO enjoys much benefit	0.826	0.853	0.883	0.899	0.690
		SP02: Comparing with other top executives, our CEO is paid much more than necessary	0.869
		SP03: Comparing with other top executives, this firm’s CEO gets larger allowances	0.806
		SP04: Comparing with other top executives, this firm’s CEO takes home (benefits and salary) more than other executives in this company	0.821

Paths: Expert Power → CEO Power (β =.333, t = 4.554, p < .05); Formal Power → CEO Power (β =.411, t = 4.979, p < .05); Ownership Power → CEO Power (β = .371, t = 9.293, p < .05); Prestige Power → CEO Power Quality (β =.263, t = 4.801, p < .05); Structural Power → CEO Power (β =.271, t = 3.945, p < .05)

Notes: FP = Formal power, PP = Prestige power, EP = Expert power, SP = Structural power, OP = Ownership power.

Source: Primary data.

Table 7. Descriptive statistics.

Variable	N	Min	Max	Mean		Std. Deviation	Skewness		Kurtosis
	Statistic	Statistic	Statistic	Statistic	Std. Error	Statistic	Statistic	Std. Error	Statistic	Std. Error
Capital structure	136	1.00	3.00	1.40	0.05	0.518	0.817	0.213	−0.523	0.423
Firm Age	136	1.00	4.00	3.07	0.09	0.982	−0.711	0.213	−0.650	0.423
Auditor Type	136	1.00	3.00	1.53	0.04	0.499	0.066	0.213	−1.463	0.423
Ownership	136	1.00	2.00	1.53	0.04	0.493	−0.110	0.213	−1.986	0.423
Board Size	136	1.00	2.00	1.53	0.04	0.485	−0.110	0.213	−1.950	0.423
CEO Interlock	136	1.00	2.00	1.26	0.04	0.429	0.084	0.213	−0.752	0.423
Employee size	136	1.00	4.00	2.89	0.10	1.156	−0.444	.213	−1.343	0.423
Structural Power	136	1.00	3.75	2.15	0.07	0.763	0.025	0.213	−0.879	0.423
Prestige power	136	1.00	3.14	2.09	0.05	0.554	−0.395	0.213	−0.661	0.423
Expert power	136	1.00	4.00	2.26	0.08	0.876	0.341	0.213	−0.775	0.423
Formal power	136	1.67	4.00	3.03	0.05	0.618	−0.415	0.213	−0.667	0.423
Ownership power	136	1.00	3.50	1.83	0.07	0.745	0.442	0.213	−1.199	0.423
CEO Power	136	1.13	3.28	2.27	0.04	0.429	0.246	0.213	0.034	0.423
Competence	136	2.17	4.00	3.18	0.04	0.464	−0.23	0.213	−0.291	0.423
Investment	136	1.75	4.00	3.02	0.05	0.519	−0.272	0.213	−0.331	0.423
IA org. Status	136	2.00	4.00	3.16	0.05	0.512	−0.113	0.213	−0.355	0.423
Role Performance	136	2.00	4.00	3.11	0.04	0.466	−0.426	0.213	0.381	0.423
IA function Quality	136	1.98	3.90	3.12	0.03	0.385	−0.506	0.213	0.492	0.423
Relevance	136	1.67	4.00	2.67	0.04	0.399	0.167	0.213	0.363	0.423
Faithful Representation	136	1.75	3.35	2.63	0.03	0.295	0.001	0.213	0.500	0.423
Earnings Quality	136	1.75	3.93	2.92	0.04	0.467	−0.123	0.213	−0.119	0.423

Source: Primary data.

Table 8. ANOVA Global variables and firm sector.

Variable	Sector	N	Mean	Std. Deviation
					df	F	Sig
CEO power	Banking Institutions	49	2.2478	.59210	3	.404	.751
	Insurance Companies	27	2.2070	.44861	132
	Utility Companies	11	2.6555	.59347	135
	Others	87	2.3364	.48012
	Total	174	2.3116	.52264
Serving two masters	Banking Institutions	49	1.7918	.76263	3	.317	.813
	Insurance Companies	27	1.7630	.64220	132
	Utility Companies	11	1.7273	.55334	135
	Others	87	2.1103	.87218
	Total	174	1.9425	.80485
Audit committee effectiveness	Banking Institutions	49	3.1017	.67308	3	.784	.610
	Insurance Companies	27	3.3706	.55690	132
	Utility Companies	11	2.5827	.86268	135
	Others	87	3.1462	.51821
	Total	174	3.1329	.61421
Internal audit function quality	Banking Institutions	49	3.2046	.63631	3	.668	.773
	Insurance Companies	27	3.0556	.75855	132
	Utility Companies	11	3.3977	.43279	135
	Others	87	3.0440	.49173
	Total	174	3.1134	.58334
Earnings quality	Banking Institutions	49	2.7245	.70313	3	.283	.838
	Insurance Companies	27	2.9802	.59888	132
	Utility Companies	11	2.2636	.89137	135
	Others	87	2.8686	.56002
	Total	174	2.8071	.64823

Source: Primary data.

Table 9. Global variables and position of respondents in a firm.

Variable	Respondents’ Position	N	Mean	Std. Deviation
					df	F	Significance
CEO power	CFO	131	2.2527	.49000	3	.404	.798
	CIA	43	2.4907	.58166	132
	Total	174	2.3116	.52264	135
Serving two masters	CFO	131	1.9695	.81768	3	.317	.920
	CIA	43	1.8605	.76785	132
	Total	174	1.9425	.80485	135
Audit committee effectiveness	CFO	131	3.1616	.63645	3	.784	.710
	CIA	43	3.0454	.53827	132
	Total	174	3.1329	.61421	135
Internal audit function quality	CFO	131	3.1179	.58689	3	.668	.823
	CIA	43	3.0994	.57901	132
	Total	174	3.1134	.58334	135
Earnings Quality	CFO	131	2.8621	.61803	3	.283	.838
	CIA	43	2.6395	.71441	132
	Total	174	2.8071	.64823	135

Source: Primary data.

Table 10. Zero order matrix.

	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20	21
CAPSTR (1)	1
AGE (2)	.161	1
AUD (3)	−.048	−.244**	1
OWN (4)	.042	−.121	.473**	1
BSIZE (5)	−.175*	−.287**	.303**	.209*	1
CEOIN (6)	.090	.009	−.093	−.080	−.138	1
EMPSIZE (7)	.062	.165	−.282**	−.169	−.413**	.117	1
Comp (8)	.021	.013	−.230**	−.129	.057	.075	.110	1
Inv (9)	.049	.129	−.242**	−.155	−.038	.118	−.052	.639**	1
OrgStat(10)	.119	.037	−.012	.045	−.086	.147	.159	.324**	.337**	1
Roleperf(11)	.026	.034	−.161	−.013	.131	−.024	−.022	.658**	.561**	.451**	1
IAFQU (12)	.070	.070	−.204*	−.080	.015	.104	.062	.823**	.811**	.680**	.839**	1
Struct (13)	−.119	.167	−.066	−.121	−.249**	−.060	.030	.025	.118	−.134	.056	.020	1
Prest (14)	−.046	.118	.015	.084	−.298**	−.041	.255**	−.025	−.040	.083	−.025	−.001	.323**	1
Exp (15)	−.018	.106	−.053	−.057	−.263**	−.011	.144	−.021	.036	.032	−.048	.002	.149	.204*	1
Form (16)	.057	−.170	.347**	.385**	.031	−.040	−.013	−.137	−.181*	.122	−.155	−.108	−.093	.240**	.066	1
Owners (17)	−.132	.055	.255**	.261**	.028	−.181*	−.124	−.040	−.022	−.229**	.013	−.092	.321**	.180*	.233**	.404**	1
CEOP (18)	−.091	.103	.147	.157	−.254**	−.111	.089	−.059	−.014	−.058	−.046	−.056	.585**	.588**	.614**	.484**	.720**	1
Rel (19)	.048	−.164	−.053	.029	.103	.039	−.148	.104	.094	−.029	−.038	.042	−.072	−.217*	−.150	−.066	−.241**	−.246**	1
FR (20)	.071	−.220*	−.054	−.066	.148	.004	.077	.031	−.094	.066	−.022	−.007	−.214*	−.168	−.280**	.022	−.317**	−.338**	.328**	1
EQ (21)	.071	−.231**	−.065	−.015	.150	.029	−.061	.088	.015	.015	−.038	.025	−.163	−.239**	−.253**	−.034	−.336**	−.349**	.863**	.760**	1

* Correlation is significant at the 0.05 level (2-tailed).

** Correlation is significant at the 0.01 level (2-tailed).

KEY: CAP = Capital Structure, EMPSIZE = Employee SizeAge = Firm Age, AUD = Auditor Type, OWN = Ownership, Board = Board Size, CEOINT = CEO Interlock, StructuralP = Structural Power, Prest = Prestige Power, Exp = Expert Power, Form = Formal Power, Owners = Ownership Power, CEOP = CEO power, Comp = Competence, Inv = Investment, Orgstat = Internal Audit Organization Status, Role Perf = Role Performance, IAFQU = Internal Audit Function Quality, Rel = Relevance, FR = Faithful Representation, EQ = Earnings Quality.

Source (S): Primary Data.

Table 11. Direct paths and hypothesized relationships.

Hypothesized path	Hypothesis	Coeff	t	p	Adj R2	NFI
IAFQ -> EQUA	H1: Not supported	0.102	0.594	0.553	4.20%	1.000
Control variables
Auditor size → EQUA	No Hypothesis	−0.143	1.219	0.223
BoardSize → EQUA	No Hypothesis	0.166	1.492	0.136
CEOInterL → EQUA	No Hypothesis	0.005	0.05	0.96
EMPSize→ EQUA	No Hypothesis	0.01	0.08	0.936
AGE → EQUA	No Hypothesis	−0.251*	2.565	0.01
CAPSTR → EQUA	No Hypothesis	0.132	1.406	0.16
Ownership → EQUA	No Hypothesis	−0.024	0.209	0.835
IAFQ → CEO power	H2: Not supported	−0.341	1.07	0.898	2.00%	1.000
Control variables
AGE → CEO power	No Hypothesis	0.067	0.512	0.609
AuditorType → CEO power	No Hypothesis	0.222	1.584	0.113
Boardsize → CEO power	No Hypothesis	−0.324	1.777	0.076
CAPSTR → CEO power	No Hypothesis	−0.14	1.113	0.266
CEOInterl → CEO power	No Hypothesis	−0.121	1.149	0.25
EMPSize → CEO power	No Hypothesis	0.073	0.683	0.495
Ownership → CEO power	No Hypothesis	0.217	1.183	0.237
CEO power → EQUA	H3: Supported	−0.360	4.477	0.000	11.70%	1.000
Control variables
AGE → EQUA	No Hypothesis	−0.209*	2.553	0.011
Auditor Type → EQUA	No Hypothesis	−0.089	0.784	0.433
Board size → EQUA	No Hypothesis	0.058	0.663	0.508
CAPSTR → EQUA	No Hypothesis	0.071	0.857	0.392
CEOInterl → EQUA	No Hypothesis	−0.033	0.365	0.715
EMPSize → EQUA	No Hypothesis	0.05	0.541	0.588
Ownership → EQUA	No Hypothesis	0.014	0.148	0.882

Notes: CAPSTR = Capital Structure, CEOinterl = CEO Interlock, EMPSize = Employee Size, IAFQ = Internal audit function Quality, EQUA = Earnings Quality.

Source(S): Primary Data.

Table 12. The moderation effect of CEO power in the relationship between internal audit function quality and earnings quality.

Coefficients^a
Model		Unstandardized Coefficients		Standardized Coefficients	t	Sig
		B	Std. Error	Beta
1	(Constant)	3.434	.394		8.710	.000
	CEO power_CENTRED	−.371	.094	−.323	−3.951	.000
	Internal audit function quality_CENTRED	.106	.102	.085	1.037	.302
R = 0. .337; R2 = .114; Adj.R2 = .100; F = 8.540; Sig. = 0.000; e = 0.46952; Durbin-Watson = 1.979
(Constant)		−.078	1.767		−.044	.965
CEO power_CENTRED		1.193	.773	1.038	1.543	.125
Internal audit function quality_CENTRED		1.213	.553	.970	2.195	.030
CEO power_CENTRED * Internal audit function quality_CENTRED		−.494	.242	−1.599	−2.037	.044
R = 0. .375; R2 = .141; Adj.R2 = .121; F = 7.212; Sig. = 0.000; e = 0.46406; Durbin-Watson = 1.961
		Model 1	Model2	Model3
(Constant)		3.116**	3.139**	3.198**
Finance		.103	.099	.062
Age		−.115**	−.117**	−.102**
Ownership		−.007	−.005	.033
Auditor type		−.129	−.116	−.046
CEO Interlock		.030	.018	−.021
Board Size		.120	.109	−.002
Internal audit function quality_CENTRED			.106	.116
CEO power_CENTRED				−.336**
R		.278	.290	.392
R^2		.077	.084	.153
F Change		1.803	.954	10.390**
R^2 Change		.077	.007	.069
SE		.48645	.48654	.46962
df1		6	1	1
df2		129	128	127
Durbin Watson Static				1.887

Note: **P < 0.01.

^a Dependent Variable: EQU.

Source: Primary data.

Table 13. Endogeneity Test.

Models	Test	Beta Coefficients	p-values
Model 1	Gaussian Copula (IAFQ)-> CEOP	−1.132	0.094
Model 2	Gaussian Copula (CEOP)-> EQU	−0.170	0.797
Model 3	Gaussian Copula (IAFQ)-> EQU	−0.1346	0.622

Source (S): Primary Data.

Notes: P values > 0.05.

Table A1. Rotated component matrix for CEO power.

Statement	Component
	1	2	3	4	5
FP07: Policy formation	.824
FP05: Selection of corporate strategy	.809
FP08: Establishing long-term goals	.710
FP02: Dealing with external groups	.648
FP10: Decisions about future divestments	.623
FP11: Decisions about capital expenditures	.622
FP12: Approving changes in capital structure	.618
FP06: Decisions about future acquisitions	.611
FP04: Decisions to adopt new technologies	.608
FP14: Planning for top leadership succession	.592
PP02: This Company’s CEO comes from a wealthy family		.838
PP03: This Company’s CEO Comes from a powerful tribe		.775
PP01: This company’s CEO enjoys the support of the ruling Government		.715
PP06: This company’s CEO is from a powerful family		.710
PP07: This company’s CEO is well-connected		.600
EP04: This company’s CEO is a skilled accountant			.897
EP05: This company’s CEO is a knowledgeable accountant			.885
EP07: This company’s CEO is a finance expert			.854
EP06: This company’s CEO has certifications in accounting			.842
SP03: Comparing with other top executives, our CEO gets larger allowances				.836
SP01: Comparing with other top executives, our CEO enjoys much benefits				.826
SP02: Comparing with other top executives, our CEO is paid much more than is necessary				.735
SP04: Comparing with other top executives, our CEO takes home (benefits and salary) more than other top executives in this company if combined				.730
OP02: This company’s CEO turnover is less involuntary					.785
OP01: This company’s CEO owns the highest number of shares in the company					.773
OP03: This company’s CEO is its founder					.756
OP04: This company’s CEO is a relative to the founding family					.649
Total	6.009	4.178	2.809	2.552	1.538
% of Variance	22.256	15.474	10.405	9.451	5.695
Cumulative %	22.256	37.730	48.136	57.586	63.281

Keiser-Meyer-Olkin measure of sampling adequacy = .789; Approx. Chi-Square= 1890.307; df= 351; Sig.=0.000.

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.

^aRotation converged in 7 iterations.

Notes: 1= Formal Power (FP), 2 = Prestige Power (PP), 3 = Expert Power (EP), 3= Structural Power (SP), 3= Ownership Power (OP).

Note: The survey instrument was anchored on a four-point Likert scale ranging from 1 = strongly Disagree, 2 = Disagree, 3 = Agree, 4= Agree.

Source: Primary data.

Table A2. Rotated component matrix for internal audit function quality.

Statements	Component
	1	2	3	4
IARP16: Have all their reports freely accessed by the regulator	.830
IARP13: Have all their working papers freely accessed by the external auditor	.767
IARP14: Have all their reports freely accessed by the external auditor	.764
IARP15: Have all their working papers freely accessed by the regulator	.703
IARP12: Coordinate their work with respect areas of work schedule	.592
IARP09: Produce work highly relied on by external auditors	.566
IARP10: Have their quality of work responsible for reduced cost of external audit to firm	.561
IAC01: Undergo adequate continuous professional development		.692
IAC05: Have the required certifications		.660
IAC02: Acquire necessary skills to perform their duties		.640
IAC04: Have the necessary experience to execute their duties		.626
IAC06: Receives sufficient budget allocation annually		.622
IAC03: Our internal auditors have full knowledge of the transaction system of entity		.609
IAC06: Understand the applications of international financial reporting standards		.595
IAOS03: Is (are) appointed by the audit committee			.743
IAOS01: Administratively reports to executive management			.713
IAOS05: Communicate(s) its findings effectively to management			.673
IAOS04: Inform(s) audit committee of any irregularity taking place within the company			.670
IAI04: Can easily detect severe internal control weaknesses				.830
IAI05: Implements stronger procedures in evaluating internal Controls				.713
IAI03: Has greater ability to monitor firm’s operations				.639
Total	9.570	2.125	1.894	1.732
% of Variance	34.179	7.590	6.764	6.185
Cumulative %	34.179	41.769	48.533	54.718

Keiser-Meyer-Olkin measure of sampling adequacy = .849; Approx. Chi-Square= 1893.559; df= 378; Sig.=0.000.

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.

^aRotation converged in 6 iterations.

Notes: 1 = Role Performance, 2= Competence, 3= Organization Status, 4= Investment.

IARP = Internal Audit Role performance, IAC = Internal Audit Competence, IAOS = Internal Audit Organization Status, IAI = Internal Audit Investment.

Note: The survey instrument was anchored on a four-point Likert scale ranging from 1 = strongly Disagree, 2 = Disagree, 3 = Agree, 4= Agree.

Source: Primary data.

Table A3. Rotated component matrix for earnings quality.

Statements	Component
	1	2
FR16: Different observers could reach consensus, although not necessarily complete agreement, that our earnings before tax (e.g) is a faithful representation	.782
FR11: The values that this company reports are usually accurate and justifiable	.715
FR12: This company’s accruals more closely correspond to this firm’s underlying economic activity	.707
FR14: Generally, we never have errors in our published accounts	.693
FR17: Knowledgeable observers could reach consensus, although not necessarily complete agreement, that our earnings before tax (e.g) is a faithful representation	.679
FR18: Independent observers could reach consensus, although not necessarily complete agreement, that our earning before tax (e.g.) is a faithful representation	.678
FR03: The dividends given out to shareholders do not normally turn out to have impoverished the company	.651
FR02: Our earnings come from core operations of our company	.633
R10: Users of our financial reports predict the future performance and financial position of a business based on our past performance.		.831
R03: I am sure if we want to borrow money, the lender will prioritize checking our profit performance especially earnings before interest and tax		.648
R05: Our earnings have persisted over a long period of time		.643
R08: It has been usual for our stakeholders to confirm our past cash flows		.593
R07: I am sure stakeholders use our reported earnings to predict our future cash flows		.584
Total	3.091	1.923
% of Variance	38.640	24.040
Cumulative %	38.640	62.679

Keiser-Meyer-Olkin measure of sampling adequacy = .749; Approx. Chi-Square= 362.737; df= 28; Sig.=0.000

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.

^aRotation converged in 3 iterations.

Notes: 1= Faithful representation (FR), 2= Relevance (R).

Note: The survey instrument was anchored on a four-point Likert scale ranging from 1 = strongly Disagree, 2 = Disagree, 3 = Agree, 4= Agree.

Source: Primary Data.

Table A4. Moderation effect of CEO power in the relationship between internal audit function quality and earnings quality

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Data availability statement

I confirm that the data set is available upon request.