The Internal Audit Dilemma - The Impact of Executive Directors Versus Audit Committees on Internal Auditing Work

Abstract

In addition to the well-known facilitators of good corporate governance, such as executive boards (EBs) and audit committees (ACs), recent literature increasingly refers to the benefits of implementing an internal audit function (IAF). This may lead to imminent problems, which are discussed under the phrase Serving Two Masters (STM) and determine our main research questions. Do the AC and EB in influence IAF's activities differently? This study seeks to analyze how IAF activities differ, depending on the impact of executive boards and audit committees. It is based on data collected from the Common Body of Knowledge (CBOK) study conducted by the Institute of Internal Auditors Research Foundation in 2010. Using 524 responses from US-Chief audit executives we examine the direct and interaction effects of ACs and EBs on the probability to perform specific activities with a logistic regression model. In our manuscript, we show that audit committees and executive boards have different direct and interaction effects on the portfolio of activities performed by the internal audit function. Furthermore, we identified a varying prevalence among activities, which pinpoints to the maturity of IAFs. All findings contribute to the prior and recent discussion about the position of IAFs between the stakeholders audit committee and executive board. This study provides the first empirical evidence of the influence of ACs and EBs on IAF activities.