CHAPTER FOUR

RESULTS AND FINDINGS

4.1 Introduction

This chapter presents results and findings of the study on influence of internal audit on

financial reporting quality of the state department in Hargeisa, Somaliland. Influenced of internal

audit status was conceptualized as internal audit independency, internal audit proficiency,

internal audit report and top management support. Financial reporting quality is often

characterized by relevance, understandability, timeliness, faithfulness and completeness. The

sample size of the study was 132 departments randomly selected. Out of 132 the directors of

departments 115 respondents returned complete questionnaire. This was an 87.12% response-

return-rate which is an acceptable response-return-rate since it was more than 70% return-rate,

the lowest accepted response-return-rate research. This chapter describes how data was collected,

analyzed and interpreted. It also presents the results and findings of the study.

4.2 Background Information

The study collected data on the background information of the respondent’s on gender,

age and marital status and residence place of the respondent. The aim of presenting the

background information is to allow for determination of the extent of generalizability of the

study by the end-users. The background data is summarized in the following table.
 Frequency Percentage

Gender Male 81 70.4

Female 34 29.6

Total 115 100.0

Age of the Below 30 64 55.7

respondents(Years) 30 - 39 37 32.7

40 - 49 8 7.0

50 and above 6 5.2

Total 115 100.0

Marital Status Single 59 51.7

Married 54 47.

Divorced 2 1.7

Total 115 100

Educational level Secondary 4 3.5

College/University 111 96.5

Total 115 100.0

Experience 2 Years and below 28 24.3

3 – 6 years 40 34.8

7 - 10 28 24.3

11 years and above 18 15.7

Total 115 100.0

Table 2: Background Information

 As the table 2 above shows distribution of the respondents of their background

information. Gender; 70.4% (81) of the respondents were male whereas 29.6% (34) of the

respondents were female. This indicates that the majority of the respondents were male. Which is

providing that most of directors of department of the state in Hargeisa, Somaliland are male

culturally. Respondents were also asked to indicate their ages. It shows that 55.7% (64) of the

respondents were below 30 years, 32.7% (37) of the respondents were aged 30 – 39 years while

7% (8) and 5.2% (6) were aged 40 – 49 and 50 and above respectively . This results shows that

majority of respondents were aged below 30 years old these aged people are well educational

development and issues in departments of the state also provided the needed work and

educations about public.

The study told about the information from respondents about their marital status. It shows

that 51.7% (59) of the respondents was single while 47% (54) of the respondents were married.

This interpretation on the above states that the respondents who asked their marital status were

single majority. According to the educational background, the researcher had asked participants

of the study their educational background. Thus it shows that 96.5% (111) of the respondents

were college/university while only 3.5% (4) were secondary. This result depicts that directors of

the departments of the state in Hargeisa, Somaliland were college/university. Respondents were

used to indicate their experience. It shows 34.8% (40) of the participants were 3-6 years of

experience, 24.3% (28) of the respondents were 2 years and below and 7 – 10 years of

experience while 15.7% (18) were 11 years and above of experienced work. So, this result

implies that the majority respondents who asked their years worked were 3-6 years of

experience.
4.3 Internal Audit and Financial Reporting Quality

4.3.1 Measurement of Variables

The study investigated the influence of internal audit on financial reporting quality of the

state departments in Hargeisa, Somaliland. To realize this purpose, the study focused on four

specific objectives: to the influence of internal audit independency: to determine influence of

internal audit proficiency, to the influence of internal audit report and to the influence of top

management support on financial reporting quality of the state departments in Hargeisa,

Somaliland. The internal audit independency were operationalized as: scope of work, records

accessible and non-audit service, Internal audit proficiency was knowledge, skill and experience,

internal audit report was as accurate, objectivity, completeness and timeliness. Financial

reporting quality of state departments was measured a relevance, faithful representation,

understandability, timeliness and completeness. Strongly agree, agree, not sure, disagree and

strongly disagree. The responses were scored on a scale such that strongly agree was 5, agree 4,

not sure 3, disagree 2 and strongly disagree 1. The scores of faithful representation were Yes and

No. The score were converted to percentages in order to obtain a standard for comparison.
 Table 3 Measurement of Variables

Objectives Variable Variable Measuring Scale Data Specific

Indicator analysis Tool
Method
1. 1. To identify the -Independency -Records 1.Strongly Dis-agree Descriptive Frequency
influence of internal accessibility 2. Disagree and Mean
audit independency on -Scope of work 3.moderate Logistic Standard
financial reporting - Non-audit 4. Agree Regression Deviation
service 5.Strongly Agree Method Logistic
quality of the state
Regression
departments in Hargeisa,
Somaliland.
1. 2. To examine the - Proficiency - Knowledge 1.Strongly Dis-agree Descriptive Frequency
influence of internal - Skill 2. Disagree and Mean
audit proficiency on - Experience 3.moderate Logistic Standard
financial reporting 4. Agree Regression Deviation
5.Strongly Agree Method Logistic
quality of the state
Regression
departments in Hargeisa,
Somaliland.
2.
3. 3. To determine the - Report - Accurate 1.Strongly Dis-agree Descriptive Frequency
influence of internal -Objectivity 2. Disagree and Mean
audit report on financial -Completeness 3.moderate Logistic Standard
reporting quality of the -Timeliness 4. Agree Regression Deviation
5.Strongly Agree Method Logistic
state departments in
Regression
Hargeisa, Somaliland.
4.
5. 4. To establish the - Management *positive 1.Strongly Dis-agree Descriptive Frequency
influence of Top response 2. Disagree and Mean
management support on *Motivation 3.moderate Logistic Standard
financial reporting *Recommendati 4. Agree Regression Deviation
on 5.Strongly Agree Method Logistic
quality of the state
Regression
departments in Hargeisa,
Somaliland.
6.
Dependent Variable Financial - Faithful 1.No Descriptive Frequency
Reporting presentation 2.Yes and Mean
Quality Logistic Standard
Regression Deviation
 Method Logistic
Regression

4.3.2 Internal Audit Independency and Financial Reporting Quality

The first objective of this study was to identify the influence of internal audit

independency on financial reporting quality of state departments in Hargeisa, Somaliland.

Internal audit independency was measured scope of work, records accessible and non-audit

service. Respondents were asked to respond various statements on these variables and the

responses were used for descriptive analyses. This result of the analysis of internal audit

independency are summarized in table 4 and were obtained.

Table 4:

Internal Audit Independency on Financial Reporting Quality

Statement N Strongly Disagree No Sure Agree Strongly Mean Standard

Disagree Agree Deviation
Statistic

Independence is the essence 115 7 8 16 37 47 3.9478 1.17610

of auditing

Independence is necessary for 115 8 6 16 44 41 3.9043 1.15450

the effective achievement of
the function of internal audit

Internal audit is free from 115 32 21 22 28 12 3.0348 1.40756

intervention in performing
his/her duties

Internal auditors may not 115 15 20 15 31 34 3.4261 1.40838

have a conflict of interests
with the organization.

Internal audit feel free to 115 32 18 7 37 21 2.9739 1.53017

include any audit findings in
their audit report
Internal auditors are not 115 21 26 26 24 18 3.0696 1.34244
assigned to audit areas in the
system design of which they
participated

Internal auditors do not 115 18 28 22 19 28 3.0957 1.42024

participate in audit of the
activities for the operation of
which they were responsible

Independence in internal 115 12 8 13 40 42 3.8000 1.29235

auditing reduces errors and
frauds
Overall Mean and Standard 3.139125 1.1090975
deviation

Table 4 shows the descriptive statistics of internal audit independency. Respondents were

asked whether independence is the essence of auditing, 6.1% (7) indicated strongly disagree

while 7.0% (8) indicated disagree, 13.9% (16) indicated not sure, 32.2% (37) indicated agree and

40.9% (47) indicated strongly agree (M = 3.9478, SD=1.1760). Respondents were also asked on

whether independence is necessary for the effective achievement of the function of internal audit.

7% (8) indicated strongly disagree, 5.2 %( 6) indicated disagree, 13.9% (16) indicated not sure,

38.3% (44) indicated agree and 35.7% (41) indicated strongly agree (M =3.9043, SD=1.15450).

Respondents were also asked whether internal audit is free from intervention in performing

his/her duties. 21.7%(25) indicated strongly disagree while 14.8%(17) indicated disagree,

18.3%(21) indicated not sure, 28.7%(33) indicated agree and 10.4%(19) indicated strongly agree

(M = 3.0348, SD=1.40756).

Respondents were also asked whether internal auditors may not have a conflict of

interests with the organization. 13%(15) indicated strongly disagree, 17.4%(20) indicated

disagree, 13.0%(15) indicated not sure, 27.0%(31) indicated agree and 29.6%(34) indicated
Strongly agree (M = 3.4261 SD =1.53017). Respondents were also asked whether the internal

audit feel free to include any audit findings in their audit report. 27.8%(32) indicated strongly

disagree, 15.7%(18) indicated disagree, 6.1%(7) indicated not sure, 32.2%(37) indicated agree

and 18.3%(21) indicated Strongly agree (M = 2.9739 SD=1.53017). Respondents were also

asked whether internal auditors are not assigned to audit areas in the system design of which they

participated. 15.7 %( 18) indicated strongly disagree, 20.9% (24) indicated disagree, 22.6% (26)

indicated not sure, 22.6% (26) indicated agree and 18.3% indicated strongly agree (M = 3.0696,

SD=1.42024).

Respondents were also asked whether on internal auditors do not participate in audit of

the activities for the operation of which they were responsible. 15.7%(18) indicated strongly

disagree, 24.3%(28) indicated disagree, 19.1%(16.5) indicated not sure, 16.5%(24.3) indicated

agree and 24.3%(28) indicated strongly agree (M = 3.0957 SD=1.42024). Finally respondents

were also asked independence in internal auditing reduces errors and frauds. 10.4%(12) indicated

strongly disagree, 7.0%(8) indicated disagree, 11.3%(13) indicated not sure, 34.8%(40) indicated

agree and 36.5%(42) indicated strongly agree (M = 3.8000 SD=1.29235). Mean and standard

deviations were used for ease of interpretation and description of findings.

4.3.3 Internal Audit proficiency and Financial Reporting Quality

The objective of this study was to identify the influence of internal audit proficiency on

financial reporting quality of state departments in Hargeisa, Somaliland. Internal audit

proficiency was measured knowledge, skill and experience. Respondents were asked to respond

various statements on these variables and the responses were used to judge the status of internal

audit proficiency. This result of the analysis of internal audit proficiency are summarized in table

5 and were obtained.

Statement N Strongly Disagree No Sure Agree Strongly Mean Standard
Disagree Agree Deviation
Statistic

The internal audit employees 115 15 10 19 41 30 3.5304 1.32003

have relevant education in
auditing

The internal auditors in my 115 17 19 18 38 23 3.2696 1.35285

organization are qualified to
undertake audit function

The internal auditors in this 115 22 21 24 26 22 3.0435 1.39794

organization always apply
professional skills specific to
financial statement audits

Internal auditors have access 115 18 23 18 33 23 3.1739 1.37816

to specialized training when
needed.

Internal auditors possess 115 20 21 25 30 19 3.0609 1.34612

sufficient experience to
understand the organization‘s
system

In Ministries departments 115 15 17 25 38 20 3.2696 1.27954

frauds and errors are
identified by the internal
audit function

Competency in internal 115 11 15 20 35 34 3.5739 1.29818

auditors helps in detection of
fraud

There are measures to ensure 115 20 23 29 30 13 2.9391 1.27243

competence in auditing
Internal audit obtains a 115 22 29 21 20 23 2.9391 1.41599
sufficient budget to
successfully carry out its
duties

Overall Mean and Standard 3.32175 1.3827225

deviation
Table 5
Internal Audit Proficiency on Financial Reporting Quality

Table 5 shows the descriptive statistics of internal audit proficiency. Respondents were

asked whether the internal audit employees have relevant education in auditing, 13.0%(15)

indicated strongly disagree while 8.7%(10) indicated disagree, 16.5%(19) indicated not sure,

35.7%(41) indicated agree and 26.1%(30) indicated strongly agree (M = 3.5304, SD=1.32003).

Respondents were also asked whether the internal auditors in my organization are qualified to

undertake audit function, 14.8%(17) indicated strongly disagree while 16.5%(19) indicated

disagree, 15.7%(18) indicated not sure, 33%(38) indicated agree and 20%(23) indicated strongly

agree (M = 3.2696 SD=1.35285). Respondents were also asked the internal auditors in this

organization always apply professional skills specific to financial statement audits. 19.1%(22)

indicated strongly disagree while 18.3%(21) indicated disagree, 20.9%(24) indicated not sure,

22.6%(26) indicated agree and 19.1%(22) indicated strongly agree (M = 3.0435, SD=1.39794).

Respondents were also asked whether internal auditors have access to specialized training

when needed. 15.7%(18) indicated strongly disagree, 20.0%(23) indicated disagree, 15.7%(18)

indicated not sure, 28.7%(33) indicated agree and 20.0%(23) indicated Strongly agree (M =

3.1739 SD =1.37816). Respondents were also asked whether the internal auditors possess

sufficient experience to understand the organization‘s system. 17.4%(20) indicated strongly

disagree, 18.3%(21) indicated disagree, 21.7%(25) indicated not sure, 26.1%(30) indicated agree
and 16.5%(19) indicated Strongly agree (M = 3.0609 SD=1.34612). Respondents were also

asked whether in ministries department’s frauds and errors are identified by the internal audit

function. 13.0%(15) indicated strongly disagree, 14.8%(17) indicated disagree, 21.7%(25)

indicated not sure, 33%(38) indicated agree and 17.4%(20) indicated strongly agree (M =

3.2696, SD=1.27954). Respondents were also asked whether competency in internal auditors

helps in detection of fraud. 9.6%(11) indicated strongly disagree, 13%(15) indicated disagree,

17.4%(20) indicated not sure, 30.4%(35) indicated agree and 29.6%(34) indicated strongly agree

(M = 3.5739 SD=1.29818).

Respondents were also asked if there are measures to ensure competence in auditing in

this organization. 17.4%(20) indicated strongly disagree, 20.0%(23) indicated disagree,

25.2%(29) indicated not sure, 26.1%(30) indicated agree and 11.3%(13) indicated strongly agree

(M = 2.9391 SD=1.27243). Finally Respondents were also asked whether internal audit obtains

a sufficient budget to successfully carry out its duties. 19.1%(22) indicated strongly disagree,

25.2%(29) indicated disagree, 18.3%(21) indicated not sure, 17.4%(20) indicated agree and

20.0%(23) indicated strongly agree (M = 2.9391 SD=1.41599). Mean and standard deviations

were used for ease of interpretation and description of findings.

4.3.4 Internal Audit Report and Financial Reporting Quality

The objective of this study was to identify the influence of internal audit report on

financial reporting quality of state departments in Hargeisa, Somaliland. Internal audit report was

measured accurate, objectivity, completeness and timeliness. Respondents were asked to respond

various statements on these variables. This result of the analysis of internal audit report are

summarized in table 6 and were obtained.

 Table 6
Internal Audit Proficiency on Financial Reporting Quality
Statement N Strongly Disagree No Sure Agree Strongly Mean Standard
Disagree Agree Deviation
Statistic

Most internal audit reports 115 21 15 18 27 34 3.3304 1.47922

are credible and objective and
truly reflect financial
reporting of the organization

Internal audit reports have 115 13 28 18 25 31 3.2870 1.38770

enough information to enable
management make informed
decisions

Internal audit reports are 115 21 19 16 35 24 3.1913 1.41976

timely which enables
management to prevent risk
and losses

The reports of the internal 115 17 27 24 27 20 3.0522 1.3301

audit department are based on
facts and can be authenticated

Internal audit in this 115 19 21 20 37 18 3.1217 1.33868

organization provides reports
with verifiable and supporting
documents

Internal audit report address 115 19 26 24 26 20 3.0174 1.35065

weaknesses in internal control
system

Internal audit reports on high 115 23 20 33 23 16 2.9043 1.31722

risk areas are done regularly

The internal audit reports are 115 18 30 24 23 20 2.9739 1.34073

in a format that is prescribed
by this organization

Overall Mean and Standard 3.51 1.29

deviation

Table 6 above shows the descriptive statistics of internal audit report. Respondents were

asked whether the most internal audit reports are credible and objective and truly reflect financial

reporting of the organization. 18.3%(21) indicated strongly disagree while 13.0%(15) indicated

disagree, 15.7%(18) indicated not sure, 23.5%(27) indicated agree and 29.6%(34) indicated

strongly agree (M = 3.3304, SD=1.47922). Respondents were also asked whether the internal

audit reports have enough information to enable management make informed decisions.

11.3%(13) indicated strongly disagree while 24.3%(28) indicated disagree, 15.7%(18) indicated

not sure, 21.7%(25) indicated agree and 27.0%(31) indicated strongly agree (M = 3.2870

SD=1.38770). Respondents were also asked internal audit reports are timely which enables

management to prevent risk and losses. 18.3%(21) indicated strongly disagree while 16.5%(19)

indicated disagree, 13.9%(16) indicated not sure, 30.4%(35) indicated agree and 20.9%(24)

indicated strongly agree (M = 3.1913, SD=1.41976).

Respondents were also asked the reports of the internal audit department are based on

facts and can be authenticated. 16.5%(19) indicated strongly disagree, 18.3%(21) indicated

disagree, 17.4%(20) indicated not sure, 32.2%(37) indicated agree and 15.7%(18) indicated

strongly agree (M = 3.0522 SD =1.33011). Respondents were also asked whether the internal

audit in this organization provides reports with verifiable and supporting documents. 16.5%(19)

indicated strongly disagree, 18.3%(21) indicated disagree, 17.4%(20) indicated not sure,

32.2%(37) indicated agree and 15.7%(18) indicated Strongly agree (M = 3.1217 SD=1.33868).

Respondents were also asked whether internal audit report address weaknesses in internal control
 system. 16.5%(19) indicated strongly disagree, 22.6%(26) indicated disagree, 20.9%(24)

indicated not sure, 22.6%(26) indicated agree and 17.4%(20) indicated strongly agree (M =

3.0174, SD=1.35065).

Respondents were also asked internal audit reports on high risk areas are done regularly.

20.0%(23) indicated strongly disagree, 17.4%(20) indicated disagree, 28.7%(33) indicated not

sure, 20.0%(23) indicated agree and 13.9%(16) indicated strongly agree (M = 2.9043

SD=1.34073). Finally Respondents were also asked the internal audit reports are in a format that

is prescribed by this organization. 15.7%(18) indicated strongly disagree, 26.1%(30) indicated

disagree, 20.9%(24) indicated not sure, 20.0%(23) indicated agree and 17.4%(20) indicated

strongly agree (M = 2.9739 SD=1.34073). Mean and standard deviations were used for ease of

interpretation and description of findings.

4.3.5 Top Management Support and Financial Reporting Quality

The objective of this study was to identify the influence of top management support on

financial reporting quality of state departments in Hargeisa, Somaliland. Top management was

measured Positive response, providing motivation and providing recommendations. Respondents

were asked to respond various statements on these variables. This result of the analysis of top

management support are summarized in table 5 and were obtained.

Table 7
Top Management Support on Financial Reporting Quality
Statement N Strongly Disagree No Sure Agree Strongly Mean Standard
Disagree Agree Deviation
Statistic

Management provides 115 21 15 18 27 34 3.3652 1.47922

enough support and training
for internal audit staff
Management regards internal 115 13 28 18 25 31 3.4174 1.38770
audit as an important function

In this organization top 115 21 19 16 35 24 3.3391 1.41976

management always provide
positive response to the
findings of the internal
auditor

Top management should 115 17 27 24 27 20 3.2870 1.3301

work as a team with the entire
audit staff to provide
motivation.

Senior management aware of 115 19 21 20 37 18 3.3130 1.33868

internal auditor’s needs.

Internal audit department/unit 115 19 26 24 26 20 3.0174 1.35065

is properly structured and
functionally positioned to
allow effective auditing
operations and reporting
relationship.

Internal audit department 115 23 20 33 23 16 3.1217 1.31722

provides comprehensive
reports and assurances to the
management

Failure of the top 115 18 30 24 23 20 3.8435 1.34073

management leads to overall
failure of internal audit
activities
Overall Mean and Standard 3.51 1.29
deviation

Table 7 above shows the descriptive statistics of top management support. Respondents

were asked whether Management provides enough support and training for internal audit staff.

16.5%(19) indicated strongly disagree while 11.3%(13) indicated disagree, 15.7%(18) indicated

not sure, 32.2%(37) indicated agree and 24.3%(28) indicated strongly agree (M = 3.3652,
SD=1.39756). Respondents were also asked whether management regards internal audit as an

important function. 9.6%(11) indicated strongly disagree while 12.2%(14) indicated disagree,

26.1%(30) indicated not sure, 31.3%(36) indicated agree and 20.9%(24) indicated strongly agree

(M = 3.4174 SD=1.22). Respondents were also asked in this organization top management

always provide positive response to the findings of the internal auditor. 14.8%(17) indicated

strongly disagree while 10.4%(12) indicated disagree, 25.2%(29) indicated not sure, 25.2%(29)

indicated agree and 24.3%(28) indicated strongly agree (M = 3.3391, SD=1.35003).

Respondents were also asked whether top management should work as a team with the

entire audit staff to provide motivation. 12.2%(14) indicated strongly disagree, 16.5%(19)

indicated disagree, 22.5%(26) indicated not sure, 27.8%(32) indicated agree and 20.9%(24)

indicated strongly agree (M = 3.2870 SD =1.30293). Respondents were also asked whether

senior management aware of internal auditor’s needs.. 16.5%(19) indicated strongly disagree,

13.0%(15) indicated disagree, 11.3%(13) indicated not sure, 27.8%(32) indicated agree and

20.9%(24) indicated Strongly agree (M = 3.3130 SD=1.28667). Respondents were also asked

whether internal audit department/unit is properly structured and functionally positioned to allow

effective auditing operations and reporting relationship. 18.3%(21) indicated strongly disagree,

15.7%(18) indicated disagree, 25.2%(29) indicated not sure, 27.8%(32) indicated agree and

13.0%(15) indicated strongly agree (M = 3.0174, SD=1.30440).

Respondents were also asked whether internal audit department provides comprehensive

reports and assurances to the management. 17.4%(20) indicated strongly disagree, 17.4%(20)

indicated disagree, 23.5%(27) indicated not sure, 19.1%(22) indicated agree and 22.6%(26)

indicated strongly agree (M = 3.1217 SD=1.40268). Finally Respondents were also asked

whether failure of the top management leads to overall failure of internal audit activities.
 9.6%(11) indicated strongly disagree, 9.6%(11) indicated disagree, 5.2%(6) indicated not sure,

38.3%(44) indicated agree and 37.4%(43) indicated strongly agree (M = 3.8435 SD=1.28821).

Mean and standard deviations were used for ease of interpretation and description of findings.

4.4 Correlation analysis of the independent variable and dependent variable

The independent variable in the study is the internal audit while dependent variable is financial

reporting quality. Spearman’s (rho) rank correlation analysis was used to test strength of

association between the variables before binary logistic regression analysis. The result of the test

is presented in Table 8 below:

Is the annual Independency Proficiency Report Management

report
presented in
Faithfull
manner?
Spearman's rho Correlation 1.000 .354** .265** .330** .395**
Is the annual report
Coefficient
presented in Faithfull
Sig. (1-tailed) . .000 .002 .000 .000
manner?
N 115 115 115 115
Correlation 1.000 .451**
.491**
.381**
Coefficient
independency
Sig. (1-tailed) . .000 .000 .000
N 115 115 115
Correlation 1.000 .781**
.548**
Coefficient
proficiency
Sig. (1-tailed) . .000 .000
N 115 115
Correlation 1.000 .652**
Coefficient
report
Sig. (1-tailed) . .000
N 115
management Correlation 1.000
Coefficient
Sig. (1-tailed) .
 N
**. Correlation is significant at the 0.01 level (1-tailed)
.*. Correlation is significant at the 0.05 level (1-tailed)

The table 8 above shows the correlation analysis of the study variables. The results shows that

there is a positive and statistically significant association between financial reporting quality and

independency rs(115) = .354, p<.01, and proficiency rs(115)=.265, p<.01, and report

rs(115)=.330, p<.01, and management rs(115) = 0.395, p<.01. The study also shows that there is

a positive and statistically significant association between independency and proficiency r s(115)

= 0.451 p<.01, report rs(115) = 0.491, p<.01, top management support rs(115) = 0.381, p<.01.

The study results also indicate a strong and positive association between proficiency and report

rs(115) = .781, p<.01, top management support rs(115) = 0.548, p<.01. Finally, the study

indicates that rs(115) = .652, p<.01.

4.5 Binary logistic regression analysis of internal control and performance

Binary logistic regression analysis of internal audit and financial reporting quality was

undertaken. Binary logistic analysis generates parameters used to measure the efficiency of the

model in measuring the relationship between variables. An intercept only model called Block 0

is the first run to establish if the predictors will add any contribution to the analysis (Menard,

2002). Omnibus Test will be used for model comparison between the intercept only and the full

model. -2loglikehood Test will measure how poorly the model predicts the classification of

variables. Cox and Snell R2 and Nagelkerke R2 measure the model’s R2. Proxies for internal audit

are internal audit independency, internal audit proficiency, internal audit report and top

management support.

4.5.1 Baseline Model

 A logistic model provides better fit to the data if it demonstrates improvement over the

baseline also called the null model or Intercept Only Model. A baseline model is run without the

predictors or dependent variable to gauge if the full model’s predictive capacity demonstrates an

improvement over the baseline model. The null model’s predictions are purely based on the data

sets that occur most in the variables. The results are presented in Table 9 below.

Table 9: Classification Table

Observed Predicted
Is the annual report presented in Percentage
Faithfull manner? Correct
No Yes
Is the annual report No 72 0 100.0
presented in Faithfull 43 0 .0
Step 0 Yes
manner?
Overall Percentage 62.6
a. Constant is included in the model.
b. The cut value is .500

The table 9 above show the classification of the dependent variable which reveals that

72% of financial reporting quality are not presented faithful manner while 43% are presented

faithful manner. The baseline Model predicts financial reporting quality 62.6%.

The baseline Model is presented in Table 10. The model contains only one variable in the

equation, which is basically a constant, meaning that the results of the model are the results that

could be obtained by chance or estimation without the dependent variable. The baseline Model is

the constants only and it is presented in the Table 10 below.

Table 10: baseline model equation

B S.E. Wald df Sig. Exp(B)

Step 0 Constant -.515 .193 7.153 1 .007 .597

The constant only model shows that variable is statistically significant (β= -.515 x 2=

7.153, p=.007). The Score Test sets out the variables not in the equation in the baseline equation.

The results are presented in the Table 11 below.

Table 12: Score test

Score df Sig.
independency 13.087 1 .000
proficiency 7.757 1 .005
Variables
Step 0 report 12.108 1 .001

management 15.582 1 .000

Overall Statistics 20.941 4 .000

Source: Research 2022

The model predicts that none of the variables will be significant with a p-Value of less

than 0.05 in the full model and the overall model will be significant. The baseline model is

generated for purpose of comparison with the full model to determine any improvement and

contributions of the predictors in the model.

4.5.2 Full Model with independent variable

The classification results for full model shows the internal audit on financial reporting

quality of state departments in Hargeisa, Somaliland. The results are presented in Table 13

below.
Table 13: Classification tablea
Observed Predicted
Is the annual report presented in Percentage
Faithfull manner? Correct
No Yes

Is the annual report presented No 62 10 86.1

Step 1 in Faithfull manner? Yes 19 24 54.8

Overall Percentage 74.8

a. The cut value is .500

The table 13 above indicates that when proxies for the independent variables (internal

audit independency, internal audit proficiency, internal audit report and top management

support) were entered, the model explained 74.8 of the cases compared to 62.6% of the base

model. This implies that the full model is an improvement over the base model.

The Omnibus Test also explains whether the variance in a given set of data is statistically

significantly greater than the overall unexplained variance. The Omnibus Test applies Chi-square

test to determine if the model better fits the data compared to the baseline model with intercept

only. The results of the Model are presented in the table below.

Table 14: Omnibus Tests of Model Coefficients

Chi-square df Sig.
Step 23.580 4 .000
Step 1 Block 23.580 4 .000
Model 23.580 4 .000

Table 14 above indicates that the Omnibus test of the model is significant (p=.000. Chi-

Square= 23.580). This demonstrates that the full model is an improvement of the baseline model

(x2= 23.580 df = 4, p=.000).

Table 15: Model Summary

Step -2 Log likelihood Cox & Snell R Square Nagelkerke R Square

1 128.451a .185 .253

a. Estimation terminated at iteration number 5 because parameter estimates changed by less than .001.

In the model summary, -2Loglikehood measures how poorly the model performs in

predicting the outcome. The reduction in -2Loglikehood to 128.451 in the full model indicates

that the model has some predictive power given the variables in the equation. Value of Cox and

Snell R2 are not analogous to R2. The R2 values approximately explain the percentage variation

in the outcome is the model analogous to how R2 explains variations in liner regression analysis.

Nagelkerke R2 of this model explains 25.3% of the outcome and Cox and Snell explain 18.5% of

the model outcome. However, with the weakness painted out already pseudo R2 are not strong in

predicting outcome as R2. Another test for goodness of fit is Hosmer and Lemeshow test; the

results are presented in Table 16 below.

Table 16: Hosmer and Lemeshow Test

Step Chi-square df Sig.

1 5.854 8 .664

The Hosmer-Lemeshow test is used to show how well the model fit in other words to test

the goodness of fit. It is considered more reliable than the traditional Chi-square test. The test

establishes whether the values are significant or not. A non-significant value indicates that the

model is a good fit and vice versa. Table 16 Reveals that Homer-Lemeshow test is not

significant (x2 = 5.854, df=8, p=.664) implying that the model is a good fit for the data.

However, this test is used with caution as it highly dependent on sample size and it may not be

reliable in analyzing small samples. Full Model of Binary logistics is in Table 17 below.
Table 17: Coefficients of Binary Logistic Regression
B S.E. Wald df Sig. Exp(B)

independency .111 .051 4.832 1 .028 1.118

proficiency -.018 .044 .160 1 .689 .983

Step 1a report .025 .047 .274 1 .601 1.025

management .090 .041 4.731 1 .030 1.094

Constant -6.148 1.497 16.875 1 .000 .002

a. Variable(s) entered on step 1: independency, proficiency, report, management.

The predictors in the full model were internal audit independency, internal audit

proficiency internal audit report, and top management. The results shown in table 17 above

indicates that internal audit proficiency (β= -.018, x2= .160, p=.689), internal audit report (β=

0.25, x2= .274, p=.601) are not statistically significant since p-value is higher than the cuff off

point of 0.05. However, the results also indicate that internal audit independency (β= .111, x2=

4.832, p =.028) and top management support (β= .090, x2= 4.731, p =.030) are positive and

statically significant at p<0.05. The result implies that for every one point changes in internal

audit independency and top management support impact the financial reporting quality increases

by a factor of 0.111 and 0.090 respectively.

The final model is presented as follows:

1
π= −(β0 +0.11 X 1+0.09 X 2)
1+e

Where

π=The Probability of p−value

β 0=Constant
 β x=Coefficient for variables

X1 = Internal audit independency

X2 = Top management Support