INTERNAL AUDIT QUALITY AND CORPORATE GOVERNANCE IN FRAGILE ECONOMIES: EVIDENCE FROM IRAQ

Abstract

Against the backdrop of Iraq's emerging economic environment, characterized by weak institutional frameworks, feeble regulatory mechanisms, and economic and political instability, the applied value of internal audit remains an area of understudied research. This paper bridges the research on the influence of internal audit quality on company performance, earnings manipulation, and enterprise risk management in such a fragile environment. Earlier research has been conducted largely in mature economies, causing a significant knowledge discontinuity in fragile institutional settings like the ones in Iraq. For plugging the void, a quantitative research framework was adopted, involving a structured survey distributed to practitioners from non-listed firms and major listed firms, with 110 valid responses gathered in total. Structural equation modeling (PLS-SEM) was applied to test hypothesized relationships. Findings indicate strong internal audits help firm performance considerably, reduce earnings manipulation behavior, and strengthen enterprise risk management. The study highlights poor Governance, when exposed to internal audit, inhibits organisational efficiency but also enriches financial transparency and sows greater risk resilience. Beyond financial outcomes, internal audit quality enhancement results in institutional viability through enhancing accountability, minimizing accounting manipulation, and strengthening stakeholder trust. Enhancing internal audit capability in emerging markets like Iraq is therefore critical to economic robustness and convergence with international plans of corporate governance and sustainability.