Factors that influence the perceived use of the internal audit function's work by executive management and audit committee

Abstract

The internal audit function (IAF) is an important component of high-quality corporate governance. We study how the head of internal audit perceives the executive management team and the audit committee to rely on the IAF's work. It is not obvious from prior work or professional anecdotes whether the IAF satisfies the needs of both groups. If multiple factors influence the IAF's work, chief audit executives (CAEs) may find themselves in a situation with competing demands, which could then compromise quality for all stakeholders. Based on a unique dataset from CAEs, two logistic regression models identify factors that influence the degree to which IAF's results are perceived as being used by both executive management and the audit committee. The results show the existence of various factors that are relevant either to both groups (e.g., strategic project reports and IAF quality) or to only one (e.g., only audit committees are interested in risk management reports while only executive management teams are interested in internal control reports), depending on whether the IAF focuses on assurance or consulting work.