Abstract
The passage of the Sarbanes-Oxley Act of 2002 (SOX) heightened the importance of internal controls and accordingly, a key control - the internal audit function. Consequently, management and external auditors have both increased their reliance on internal auditors’ work. While there has been considerable research regarding the impact of the underreporting of time and premature sign-offs on the external audit, there has only been one study that has examined the impact of these two items on the internal auditors’ work. Such research is dated (1994) and prior to the passage of SOX. We surveyed members of the Institute of Internal Auditors (IIA) in the Midwest to examine their behavior and perceptions regarding these two items. The respondents in our study believe the underreporting of time is unethical and is supported by their reporting of all time worked, even if such time exceeded the budget. Our findings also show that the respondents feel premature sign-offs are unethical and result primarily from lack of professional skepticism and inadequate training. Increasing training in audit areas and improving communications within the audit team are possible solutions to reduce premature sign-offs. Premature sign-offs are more likely to occur in operational audits and to a lesser degree in financial audits and compliance audits.
Highlights
T he underreporting of time and premature sign-offs can negatively impact the quality of audit work by internal auditors, which can impact an entity‟s external audit
AU 322.05 indicates that the external auditor should make inquiries of management and internal audit personnel about the following items related to the internal audit function - organizational status, application of professional standards, such as those developed by the Institute of Internal Auditors, audit plan and access to records, and whether there have been any scope limitations of their activities
The second section of our survey is on time budgets and inaccurate reporting of time. These questions focus on the control mechanism, reporting time, the use of time budgets on performance evaluation, the current preparation of time budget, internal auditors‟ attitude to time reporting, and actions they may take under time pressure
Summary
T he underreporting of time and premature sign-offs can negatively impact the quality of audit work by internal auditors, which can impact an entity‟s external audit. We conducted a study that examined the underreporting of time and premature write-offs by internal auditors. The first section of the paper summarizes relevant research that examined the underreporting of time and premature sign-offs by internal auditors. Azad (1994) is the only research that has examined the underreporting of time and premature sign-offs among internal auditors. He mailed a survey to members of the Institute of Internal Auditors (IIA), in particular, from the Atlanta, Dallas/Fort Worth, Houston, and Los Angeles chapters. While a lot of the respondents have public accounting experience it is interesting to note that 45.5% of them have no experience in public accounting at all
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