The Effect of Audit Quality and Internal Audit Structures on a Firm's Performance: Empirical Study of Companies in the Jakarta Islamic Index

Audit plays a crucial role in enhancing corporate governance transparency. In the context of emerging markets, especially Indonesia, where specific Islamic finance requirements apply, this control mechanism is of particular importance. The quality of audit services and the reliability of internal control structures have a direct impact not only on financial reporting but also on the overall performance of the firm. This study aims to empirically analyse and quantify how these two key elements affect the performance of companies included in the Jakarta Islamic Index, providing valuable information for investors, regulators and business leaders seeking sustainable development within the framework of Sharia principles. Audit quality measurement uses audit quality metric scores (AQMS). This research employs a causal comparative design with a quantitative approach. The study sample comprises 24 companies, and the data span the period from 2017 to 2024. Data were analysed using the data panel regression, as determined by the Lagrange Multiplier test. The results reveal that audit quality has a negative and significant effect on a firm's performance. In contrast, internal audit structures, measured by the frequency of internal audit meetings, have a negative but insignificant effect. However, audit quality and internal audit structures explain only 7.88% of the variance in a firm's performance, with the remaining 92.12% attributed to other factors not involved in this study. This situation arises for several reasons. The largest part of the firm's performance indicators (the same 92.12%) often depends on macroeconomic and market conditions that are not the subject of the audit (industry dynamics, economic cycle, competitive environment). The role of audit is to ensure transparency, reduce risks and comply with rules. It is not a driving force for innovation, sales or operational efficiency. The impact of an audit is often indirect, rather than direct. Thus, the result of 7.88% does not mean that the audit is unimportant. It means that fundamental economic and management decisions (such as strategy, marketing, innovation, and operations) have a significantly greater impact on the firm's performance than control and reporting mechanisms. Companies must place a greater emphasis on the quality of internal audits and integrated governance strategies to ensure that audits make a meaningful contribution to long-term performance.