Abstract
Prior research finds that the internal audit function (IAF) plays a critical role in organizations, yet there is still a stigma toward the profession. We examine how this stigma affects internal audit outcomes, using three different data sources: survey results from parts of Europe (113 observations) and the United States (124 observations) for the year 2017 and an experiment (65 observations) in 2018. We find that when internal auditors in parts of Europe and the U.S. believe there is a negative stigma about internal auditing, they report negative work outcomes, including less ability to add value, less influence in the organization, more resistance to implementing their recommendations, and more pressure to change audit findings. Our experimental results confirm the survey findings and provide further evidence that negative stigma causes participants to perceive less value in internal audit reports and that internal audit recommendations are less influential in decision-making. Taken together, the results suggest that negative perceptions of internal audit have a significant impact on the profession
Highlights
This study is motivated by three different sets of research findings of internal auditing
We examine the perceived value internal auditing adds to the organization, the influence the internal audit function (IAF) has in an organization, how much stakeholders rely on suggestions and work performed by the IAF, and whether the IAF is pressured to suppress or change their findings
They responded with a value of 4.17 on a 7-point scale, which does not statistically differ from the midpoint of the scale (p-value > 0.10). It appears that U.S internal auditors, on average, do not believe others have a stigma about internal auditing, and do not believe that others hold positive views about the profession[16]
Summary
This study is motivated by three different sets of research findings of internal auditing. A growing body of studies shows that internal auditing improves the organization in numerous ways, such as improving financial performance (Jiang, Messier, & Wood, 2020) improving risk management (Carcello, Eulerich, Masli, & Wood, 2020), reducing fraud and earnings management (Prawitt, Smith, & Wood, 2009; Prawitt, Sharp, & Wood, 2011; Christ, Masli, Sharp, & Wood, 2015; Ege, 2015; Abbott, Daugherty, Parker, & Peters, 2016; Bills, Huang, Lin, & Wood, 2020; Ege, Seidel, Sterin, & Wood, 2021) improving internal controls (Lin, Pizzini, Vargus, & Bardhan, 2011), using new technologies to increase efficiency and effectiveness (Eulerich, Pawlowski, Waddoups, & Wood, 2021) and lowering external audit fees and increasing external audit timeliness (Felix, Gramling, & Maletta, 2001; Prawitt et al, 2011; Abbott, Parker, & Peters, 2012a, 2012b) In contrast, another stream of research shows that accounting and non-accounting business professionals have negative perceptions of internal auditing even though it adds value to organizations (Burton, Starliper, Summers, & Wood, 2015; Bartlett, Kremin, Saunders, & Wood, 2016, 2017) or that the role in the organization is not always clearly defined (Christ, Eulerich, Krane, & Wood, 2021). Given that these negative views exist, we study how negative stigma about the internal auditing profession impacts key internal auditing outcomes; including the ability of the internal audit function (IAF) to add value, internal audit’s influence in the organization, auditees’ willingness to implement IAF suggestions, and management’s exertion of pressure to change internal audit findings
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