Establishment of a Corporate Governance Effectiveness Performance Index using Rasch Measurement: Internal Audit Experience in Malaysian Institutions of Higher Learning

Rating of audit outcome (RAO) was recently introduced by the Auditor-General, Government of Malaysia (AG). The rating scale is also deemed to be the performance standard. The AG uses star ratings in evaluating the financial management skills of the ministries in Malaysia. The star ratings are categorised as follows: 4 stars -Excellent (90% - 100%), 3 stars - Good (70% - 89%), 2 stars -Satisfactory (50% - 69%), 1 star -Not Satisfactory (49% and below). Measuring performance in an appropriate way is vital to ensure valid context and quality information be generated for meaningful use. A matter of prime concern in organisational excellence is internal audit, a control mechanism against systems failures. A perception survey in collaboration with the Institute of Internal Auditors was conducted on corporate members (N=54) and the Internal Auditors (N=69) from selected Malaysian Institutions of Higher Learning (IHLs). Data obtained is used to calculate the audit performance indicators, Dk, and the performance index, APi, which is closely connected with various emotional, cognitive and intentional components. Instead of the common use of simple mean over several ordinal variables, Rasch Measurement is used to establish the audit performance index (APi). Rasch Measurement enable the construction of a linear scale using logit as the unit for measurement, where the mean, i x is construed as the probability of a successful audit, hence, the APi. It was found that the model can help establish a theoretical basis for measuring such service performance and help IHL top management to meet the governance requirements. Since the index is modeled using dimensions and attributes related to the audit process, the APi enables a more holistic and reliable evaluation of an internal audit process effectiveness, Ae; i.e. the level of service effectiveness rendered. The results of the study showed some information and basis of correlation between an audit effectiveness and good corporate governance. This enables prudent action to be taken and continually improve the effectiveness of an organisation's performance.

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