Internal audit quality and resistance to pressure

Salem M Al Fayi

doi:10.1108/jmb-11-2021-0053

Abstract

PurposeThe work of internal auditors is relevant to their host entities' reporting processes; however, few researchers have examined how internal auditors’ competency and objectivity affect their resistance to pressure from host entities regarding their reports. Thus, the main objective of this study is to examine the influence of internal audit functions' (IAF) quality factors on chief audit executives' (CAEs) ability not to modify internal audit report.Design/methodology/approachThis study uses data from the Global Internal Audit Common Body of Knowledge to investigate the relationship between IAF quality and auditor resistance to pressure related to changes in internal audit reports. IAF quality is calculated using a composite measure comprising four IAF quality components. Auditors' resistance is measured using the extent to which internal auditors experienced a situation wherein they were directed to modify a valid audit finding in a report.FindingsThe analyses provide evidence that CAEs experience, certification, training and objectivity were all significantly associated with resistance to pressure. In other words, a greater quality of IAF leads to a greater ability to resist pressure to change their reports.Research limitations/implicationsDespite the statistically significant results that confirm the impact of IAF competence and objectivity on the resistance of CAEs to pressure, some other factors should be considered simultaneously in future research. In addition, the study sample contains 2,193 CAEs from different regions, environments, sectors and business areas. Focussing on a particular environment, sector or organisation size may generate different results.Practical implicationsThe following practical implications are proposed: First, internal audit regulators will find this study helpful in formulating strategies for creating balanced relationships between CAEs and other authorities and users. Second, CAEs can be encouraged to undergo constant training and complete professional development (as required by the Institute of Internal Auditors [IIA] standard). Finally, it would be interesting to apply this study to a particular environment, sector and size.Originality/valueThis study builds on the limited research that investigates the relationship between IAFs’ quality and the resistance of CAEs to pressure. It extends Calven’s (2021) study that investigates the impact of adherence to the IIA's Core Principles on the likelihood of IAFs modifying valid audit findings. This study examines the influence of IAF quality factors on CAEs' ability not to modify internal audit report.

Highlights

The Institute of Internal Auditors (IIA) considers the internal audit function (IAF) to be one of the pillars of an effective corporate governance model, along with the audit committee (AC) of the board of directors, the executive management and the external auditor (Gramling et al, 2004)
Competence and objectivity may be viewed as a continuum, but a high level of competence cannot compensate for lack of objectivity, and the opposite is true (Rodgers and Al Fayi, 2019)
Methodology and model specification The purpose of this study is to test whether IAF quality is negatively associated with chief audit executives’ (CAEs) by changing valid internal audit reports

Summary

Introduction

The scope of internal auditors covers auditing and provides a variety of assurance and consulting services for companies (The Institute of Internal Auditors [IIA], n.d.) This dual role of controller and service provider may impair the quality of reporting. The argument underpinning the assumption is that internal auditors will be more willing to cooperate with management’s wishes and requests, which may influence their reporting decision. One aspect of such vulnerability is the threat to the auditor’s independence that results from the weaker power exercised by the AC compared to the top managers (Roussy, 2015) or the conflict of interest between the two masters (Norman et al, 2010). It has been shown that a low level of independence from management influences the value and reliance of the work of IAF (A Fayi, 2021; Al-Twaijry et al, 2004)

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