Determining whether there are any Effects of Incentive Compensation and Stock Ownership on Internal Audit Procedures

Abstract

This study examines whether internal auditor incentive compensation and stock ownership affect internal auditors' decisions to extend audit procedures when warranted. Internal auditors may be reluctant to extend audit procedures in situations that could adversely impact the company's earnings, as this could have a negative impact on the internal auditor's compensation and/or stock value. Since this involves a sensitive issue, the randomized response technique is used to elicit responses. The results indicate that while a sizeable proportion of internal auditors were reluctant to extend audit procedures when warranted, neither incentive compensation nor stock ownership affected the audit planning decisions.