The Impact of the Board's Characteristics and The Auditor Dispositional Optimism Bias on Internal Audit Quality: Evidence from Saudi Listed Firms

Abstract

This study examines the combined influence of board characteristics and internal auditor dispositional optimism on the quality of internal audit in Saudi joint-stock companies. Grounded in agency theory, behavioral theory, and human capital theory, the research investigates how structural governance elements, such as board independence, size, CEO duality, and risk committee presence among others, interact with psychological traits of internal auditors to affect audit outcomes. Data were collected through interviews with  57 internal auditors from 19 Saudi listed  firms and analyzed using the MICMAC method. The findings identify auditors dispositional optimism as a new determinant of internal audit quality. Other traditional variables such as board independence, auditors professional experience, and risk committee presence as key drivers of audit quality. Notably, the gender of auditor had no potential impact on internal audit quality. The study highlights the importance of integrating behavioral and structural factors in understanding internal audit effectiveness and offers insights relevant to governance reforms in emerging markets.