Effect of Internal Audit Quality on the Financial Performance of Insurance Companies: Evidence from Kosovo

The study aims to investigate the effect of internal audit quality on the financial performance of insurance companies operating in Kosovo. To measure financial performance the ratio between net profit and total assets (ROA) is used. The data are taken from the 6-month financial statements of these companies for the period 2015-2021. The independent variables were internal audit standards, professional competence, independence of the auditor, and efficiency of the internal audit. In addition, three control variables were included (company growth, company size, and company age). The results of the study show that professional competence has a significant positive impact on financial performance, while the effectiveness of internal audits negatively impacts the financial performance of insurance companies. Regarding the control variables, the size of the insurance company has a strong positive correlation, in contrast to the age of the company, which has a negative and significant impact on the financial performance of insurance companies in Kosovo. The study recommends that insurance companies pay special attention to the effectiveness but also the independence of the internal auditor due to the negative impact they can have on financial performance. The findings of the study may be of interest to many different stakeholders, both inside and outside insurance companies, to improve the effectiveness and increase the independence of internal audits.