THE ROLE OF EXTERNAL AND INTERNAL AUDITING IN PRACTICING AUDIT AND OVERSIGHT ON THE EFFECTIVENESS OF FINANCIAL PERFORMANCE IN BANKS

Abstract

This research examines the influence of both internal and external audit functions on the financial performance of Iraqi commercial banks. A quantitative approach was employed, drawing on secondary data from two major institutions, namely Region Trade Bank Commercial Bank of Investment and Finance and the International Development Bank of Investment and Finance, covering the period 2022 to 2024. The analysis of financial performance focused on four dimensions: liquidity, profitability, debt management, and operational efficiency, while regulatory adherence was assessed through the CAMEL framework. Findings reveal a strong association between auditing practices and the performance of the banks. Region Trade Bank Commercial Bank demonstrated favourable outcomes, with a strengthened current ratio and marked improvements in profitability, as evidenced by an increase in the gross profit ratio from 26% to 68% during the study period. Despite these gains, the cash liquidity assessment highlighted instability, including negative ratios in 2023, reflecting challenges in managing cash flow. In contrast, the International Development Bank exhibited consistent growth, with total assets rising from 1.8 trillion to 3.0 trillion Iraqi dinars, while maintaining stable current ratios ranging from 109 to 114. Both banks were found to comply with capital adequacy and liquidity coverage requirements, although their net stable funding ratios produced mixed results. Overall, the study suggests that effective auditing enhances banking performance by strengthening risk management, ensuring regulatory compliance and promoting operational transparency. However, to maximise benefits without imposing excessive bureaucratic constraints, the design and implementation of audit intensity must be strategically managed.