Internal audit (IA) is a crucial function for banks, impacting internal control systems and resource efficiency. The Institute of Internal Auditors (IIA) highlights IA's role in improving organizational operations and adding value. IA helps banks implement strategies, identify threats, and achieve goals. The IA department performs monitoring, consulting, and feedback functions. Unlike external audit, IA's development is relatively recent, largely linked to the 1929 US economic crisis. The need for IA arises from the separation of ownership and management, with internal auditors providing assurance on financial statement reliability. IA plays a significant role in administrative and operational aspects, enabling organizations to achieve maximum results and ensure sustainability, acting as a primary guardian of financial information. Evaluating performance through IA contributes to accountability, and IA is vital in risk management and advisory services. However, IA practice varies across regions due to political, economic, cultural, and stakeholder influences. This study focuses on Arab countries, a region with unique cultural and religious contexts, to investigate the factors influencing IA effectiveness and its impact on bank performance, addressing the under-researched nature of IA in this context. The study contributes by providing a detailed analysis of IA's role in the Arab region, offering insights for stakeholders, including the IIA, bank management, and government agencies. It also contributes to understanding the importance of gender diversity in audit departments within a conservative cultural system and clarifying the compatibility between Islamic and international standards. Finally, it expands knowledge about the peculiarities of internal control in banks.

This study primarily utilizes resource-based theory, which suggests that organizations are a collection of capabilities, and strengthening these capabilities requires various tangible and intangible assets. The IA department requires resources to ensure its effectiveness and efficiency. The literature review examines the impact of several factors on IA effectiveness and bank performance. The implementation of IA standards is shown to improve performance by enabling timely risk identification and increasing transparency and accountability. Studies highlight the critical role of independence and objectivity in IA, leading to improved organizational performance and reduced cost of debt. However, some research indicates that IA's independence can be challenged by factors like family ownership and government interference. The professional competence of internal auditors is another key element, with studies showing a strong relationship between auditor expertise and organizational performance. However, some research points to a lack of effectiveness due to inefficiency and limited numbers of auditors. Gender diversity in IA departments is also addressed. While some studies highlight the positive impact of female representation on performance, others show no significant relationship or even negative effects. The size of the IA department and the frequency of meetings are explored, with some studies indicating a positive effect on performance, while others show no significant relationship. Finally, management support for IA is discussed, demonstrating its crucial role in activating the IA function and improving performance, although some research suggests it has limited impact. Overall, this literature reveals differing views on each of the factors and a lack of robust empirical research particularly on the Arab context.

This quantitative study used a closed-ended questionnaire distributed to 170 branches of 34 commercial banks across five Arab countries. A total of 172 responses were received, considered sufficient for PLS-SEM analysis. A five-point Likert scale measured respondents' agreement with statements related to six IA factors (implementation of IA standards, independence and objectivity of IA, professional competence of internal auditors, female representation in the IA department, size of IA and frequency of meetings, and management support for IA) and bank performance. Demographic data on gender, education, job type, experience, and years of employment were also collected. The study used SmartPLS 3.3.3 to perform SEM. Convergent validity and internal reliability were assessed using item loadings, average variance extracted (AVE), composite reliability (CR), and Cronbach's alpha. Discriminant validity was assessed using the Fornell-Larcker criterion and the heterotrait-monotrait ratio (HTMT). Multicollinearity was checked using the variance inflation factor (VIF). Structural model path coefficients, t-statistics, p-values, f², effect size, R², and Q² were used to test the hypotheses. A moderation analysis was conducted to explore the mediating role of IA performance between the IAS and bank performance using the Baron and Kenny method and Preacher and Hayes approach.

The SEM analysis revealed that the implementation of IA standards, independence and objectivity of IA members, female representation in the IA department, the size and frequency of meetings, and top management support all had a significant and positive direct effect on commercial bank performance. However, the professional competence of internal auditors did not have a significant impact on bank performance. The moderation analysis showed that IA performance did not significantly mediate the relationship between the IAS and bank performance. The overall model explained 47% of the variance in bank performance (R²=0.477). The Goodness of Fit (GoF) was 0.507, indicating a good fit of the model. The direct effect of the IAS on IA performance was positive and significant, but the direct effect of IA performance on bank performance was negative and not significant. The indirect effect of IAS on bank performance through IA performance was negative and insignificant. All hypotheses except H3 and H9 were accepted.

The findings confirm the importance of several factors in improving IA effectiveness and bank performance. The significant impact of adhering to IA standards supports the view that compliance with regulations enhances audit quality. Auditor independence and objectivity are crucial for ensuring reliable audit practices and minimizing biases. The positive influence of female representation underscores the benefits of gender diversity in improving organizational performance. The results concerning size and meeting frequency and management support highlight the importance of sufficient resources and strong organizational backing for the IA function. The non-significant role of auditor professional competence may reflect the complexities of measuring this construct or limitations in data collection. The absence of mediation suggests that the impact of the IAS on bank performance is primarily direct rather than channeled through IA performance. The study's findings are significant because it helps fill a research gap by providing empirical evidence from a context where IA is under-developed.

This study provides valuable insights into the impact of internal audit systems on the performance of commercial banks in emerging markets, specifically within the Arab context. The results demonstrate the crucial role of various factors, including adherence to international standards, independence, gender diversity, and management support. Future research could expand the geographical scope, investigate additional factors influencing IA effectiveness, such as political and economic systems, and explore the effectiveness of IA practices within different organizational types. The limitations of the study include relying on self-reported data and a specific regional focus.

The study has several limitations. The data were collected through self-reported questionnaires, which might be subject to bias. The sample was limited to commercial banks in five Arab countries, limiting the generalizability of the findings. Additional factors that could impact IA effectiveness, such as political stability and economic conditions, were not included. Further research could address these limitations by employing mixed-methods approaches, expanding the geographical and sectoral scope, and incorporating more comprehensive variables.