This paper aims to examine the characteristics and relations between different phases of the knowledge creation process and their impact on the value added by the internal audit function (IAF) in banks.
A quantitative cross-sectional study was conducted to examine the impact of the knowledge creation process on the value added by the IAF in banking. Confirmatory factor analysis was applied to validate the measurement model, while structural equation modeling was performed to assess the structural relationships. Data were collected from 54 internal auditors across European countries working in banking.
The findings show positive correlations among all dimensions of the knowledge creation model within IAFs in banking. Internalization of explicit knowledge into tacit emerges as the key driver of value added by IAFs in banks, while other phases show no significant direct effects.
This research is subject to several limitations that should be considered when interpreting the findings and initiating further research. First, expanding the scope to include a broader or diversified population of internal auditors from other regions might generate more varied or stratified results regarding relevance, direction and intensity of interrelations among variables. Second, conducting research that is limited to state or regional boundaries may lead to findings that exhibit an aggregate population and exclude cross-cultural differences. Third, a focus on another industry/sector, or a comparative analysis across different industries/sectors might reveal different interrelationships among variables. Fourth, administering questionnaires in native languages of respondents could influence their comprehension, therefore decreasing the likelihood of misinterpretation, increase the response rate and the rate of fully completed responses. Fifth, the cross-sectional design of this study limits the ability to establish causal relationships between variables, as the data represents a single point in time rather than changes over time. Finally, collecting data by self-reporting may cause a tendency of respondents to provide socially desirable answers and their scores might not entirely represent the reality of activities, relationships and situations in IAF or in organizational context.
A positive learning culture, training and participation in knowledge internalization processes should be encouraged within IAFs in banks. The evaluation of internal auditors during recruitment and performance appraisal should include their ability to internalize explicit knowledge into practical tacit capabilities that enhance value added in the banking context.
The study points to the knowledge creation process as a key driver for enhancing the value added by IAF in banks. By focusing on the banking sector, it provides novel evidence on how specific phases of the knowledge creation process within IAFs contribute to the value they add in a highly regulated, knowledge-intensive industries.
