Factors That Influence the Use of the Internal Audit Function by Executive Management and Audit Committee

Abstract

The internal audit function (IAF) is an important component of high quality corporate governance. We study how two important groups in the corporate governance mosaic—the executive management team and the audit committee—rely on IAF's work. It is not obvious if the IAF satisfies the needs of both groups. Especially if multiple factors influence IAF's work, Chief Audit Executives (CAEs) may find themselves in a Serving Two Masters-situation which could compromise quality for all stakeholders. Based on a unique dataset from CAEs, two logistic regression models identify factors that influence the degree IAF's results are used by both the executive management and the audit committee. The results show the existence of various factors, which are relevant for either both (e.g. strategic project reports and IAF quality), or only one of the respective players (e.g., audit committees are interested in risk management reports while executive management teams are interested in internal control reports), depending on whether the IAF focuses on assurance or consulting.