Chief Audit Executives Research Articles

Internal auditors’ perceptions of the function’s ability to investigate fraud

PurposeThe purpose of this paper is to examine the relation between internal audit function (IAF) characteristics and organizational variables and IAF’s self-investigation about fraud and irregularities (SIFI) in the French context.Design/methodology/approachThis paper uses the responses of 96 chief audit executives (CAEs) to a global survey of the internal auditing profession carried out by the Institute of Internal Auditors Research Foundation (IIARF) in 2010. A logistic regression model is used to determine factors influencing IAF’s SIFI.FindingsThe authors’ findings reveal that IAF’s SIFI is positively correlated to independence and objectivity, the number of activities performed by the function, adoption of a systematic approach to evaluate the effectiveness of risk management and the size of the company.Research limitations/implicationsThis study examines the factors associated only to IAF’s investigation rather than assessment of the risk of fraud. It remains for future research to analyze determinants those related to internal auditors’ approaches when they evaluate the risk of fraud.Practical implicationsThe findings have implications for CAEs who wish to improve the IAF’s ability to investigate fraud.Originality/valueEven if the IIA has stipulated since 2009 that internal auditors must have knowledge to evaluate the risk of fraud, no disclosure requirement exists, in France, for IAF or its charter. The areas of research related to internal audit behavior in relation to fraud concern fraud risk investigation of financial fraud and management/employee misconduct.

The Impact of Professional Competence & Staffing of Internal Audit Function on Transparency and Accountability Case of Zimbabwe Local Authorities

The study aimed at investigating the impact of internal audit function competence & staffing on transparency & accountability in Zimbabwe local authorities. The study adopted professional competence & staffing as the independent variable and transparency & accountability as the dependent variable. Survey data was obtained from management and internal audit personnel from local authorities in Zimbabwe using semi-structured questionnaires and focus group discussions. Questionnaire responses were obtained from 182 respondents. Two focus group discussions were held separately with 13 senior managers and 8 Chief Audit Executives from local authorities in Zimbabwe. Regression and multivariate analysis were used to test the hypothesis that internal audit function professional competence & staffing is positively associated with transparency & accountability in Zimbabwe local authorities. The study established that there is a significant positive relationship between internal audit function competency dimensions of qualification, experience and training and transparency & accountability in Zimbabwe local authorities. The study reveals the need to improve and uphold internal audit function competency through creation of an enabling environment to support internal audit functions and guarantee their effectiveness in upholding corporate governance practices. The study recommends the establishment of a centralized Local Government Internal Audit Agency under the Ministry of Local Government, Public Works and National Housing, responsible for coordinating, supervising, monitoring and reviewing local authorities internal audit functions as a stride towards improving public finance management systems and corporate governance practices within the country’s public sector. Keywords: Professional Competence & Staffing, Internal Audit Function, Transparency & Accountability DOI : 10.7176/RJFA/10-8-15 Publication date : April 30 th 2019

The Impact of Ethics & Objectivity of Internal Audit Personnel on Transparency & Accountability Case of Zimbabwe Local Authorities

The study aimed at examining the impact of Ethics & Objectivity of Internal Audit Function on transparency and accountability. The study adopted ethics & objectivity (as determined by internal auditors’ personal needs strength and enhanced by the Chief Audit Executive’s leadership style), as the independent variable and transparency & accountability as the dependent variable. The effect of internal audit function on transparency & accountability was assessed through management perception, organization policy, auditees’ cooperation and risk exposure of the organization. Survey data was obtained from a sample of 182 internal audit and management personnel from local authorities in Zimbabwe using semi-structured questionnaires. Correlation and regression analysis were used to test the hypothesis that internal audit function ethics & objectivity is positively associated with transparency and accountability. Study findings reveal that internal audit function ethics & objectivity is positively associated with transparency & accountability. The study established the need to improve operational paradigms guiding internal audit in Zimbabwe local authorities so as to empower internal audit functions and ensure they judiciously act in the best interest of the public, especially in circumstances where the general ethical conduct of their respective local authorities is defective and against public interest. Keywords: Ethics &Objectivity, Internal Audit Function, Transparency & Accountability DOI : 10.7176/EJBM/11-7-09 Publication date :March 31 st 2019

Going Global: Factors Influencing the Internationalization of the Internal Audit Function

This study investigates the internationalization of internal audit functions by examining possible drivers of permanently employing internal auditors in foreign countries. As corporate scandals, the ongoing globalization and increased environmental complexity necessitate new approaches to control, the internal audit function is faced with finding the most suitable organizational form for providing enterprise-wide assurance. Survey data from 295 chief audit executives is used to construct an exploratory model of internal audit function internationalization whose development is supported by fourteen preliminary in-depth interviews with internal audit practitioners. Positive effects on the degree of the internal audit function’s internationalization are observed for company complexity, audit committee and supervisory board oversight, the use of local expertise, as well as company’s affiliation to the financial sector and firm size. A focus on the internal audit function’s cost efficiency is negatively associated with its degree of internationalization. This paper adds to the growing literature on internal auditing while filling a research gap on internal audit function staffing practices in the international context.

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

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.

Interaction between internal and external auditors – insights from a developing country

Purpose The purpose of this study is to examine the nature and extent of interaction and the relationship between internal auditors (IAs) and external auditors (EAs) from the perspective of the IAs in a developing country, Zimbabwe. Design/methodology/approach This study was carried out by soliciting the opinions of chief audit executives (CAEs) in Zimbabwe through an online survey that was distributed via e-mail. Findings The study finds that the interaction between the IAs and EAs is limited and that EAs may not be making full use of the internal audit function (IAF). Findings also suggest that the relationship between the auditors is, in some instances, strained and that the actions of management do not always facilitate the fostering of a good, productive relationship between the auditors. Originality/value Results of this study contribute to the understanding of the nature and extent of interaction between the IAF and EAs in an African setting. The study also solicits qualitative data about the relationship between IAs and EAs where previous research has largely focused on objective measures, failing to take into account factors such as attitudes and biases, which can affect this relationship. Finally, the results of this study bring to light important, previously under-explored issues, which provide opportunities for future research.

Compensation of internal auditors: Empirical evidence for different impact factors

This paper examines the different factors which impact the compensation level of chief audit executives (CAE) and sheds light on often unobservable and, therefore, opaque drivers of CAE remuneration. An ordered logistic regression is used to analyze the effects of internal audit function (IAF) competences, stakeholder relationships, and firm complexity on the CAE compensation using survey data from 212 CAEs from a broad spectrum of companies and industries. The results of the study identify IAF competence and independence as fundamental drivers of CAE compensation and provide evidence that firm complexity in terms of foreign sales, listing status and need for monitoring constitute additional salary determinants related to the IAF environment. Our results are based on questionnaire data and subject to a possible response bias as they rely in part on the participants’ assessment of a given situation. This paper provides a benchmark for CAE compensation levels in Austria, Germany and Switzerland and offers insights on different company and IAF inherent factors that can be associated with varying salary outcomes. This study is the first to investigate the factors driving the overall compensation level of CAEs and by providing empirical evidence regarding determinants of CAE compensation.

The Effects of Interaction between Internal Auditor and Audit Committee on Fraud Detection in Malaysia

This study aims to examine the effect of interaction between internal auditor and audit committee on fraud detection in Malaysia. Specific interaction is firstly; audit committee approving the appointment of chief audit executive, the evaluation of chief audit executive, the dismissal of chief audit executive, the internal audit budget and the internal audit plan or program. Secondly, audit committee’s involvement in reviewing internal auditor’s work specifically; providing input for the internal audit plan, reviewing the results of internal auditing related to financial reporting, reviewing the results of internal auditing related to internal control, reviewing the results of internal auditing related to compliance with laws and regulation, reviewing the internal audit involvement in management responses to internal audit suggestions, reviewing the difficulties or scope restrictions encountered by internal auditors and reviewing the coordination between internal auditors and external auditors. Survey questionnaires were mailed to internal auditors attached to 782 companies listed on Bursa Malaysia’s main market. The results of this study suggest that involvement of audit committee in approving chief audit executives’ matters is insignificant on internal auditors’ contribution to fraud detection. However, audit committee’s involvement in reviewing internal auditors’ work significantly influence the internal auditors’ contribution in fraud detection.

The role of the internal audit function in integrated reporting: a developing economy perspective

PurposeThe purpose of this paper is to explore the roles of the initial perceptions of chief audit executives (CAEs) on the role of internal audit function (IAF) in integrated reporting (IR) in South Africa. This paper draws attention to possible challenges and barriers to internal audit’s (IAs) involvement in the integrated reporting process (IRP).Design/methodology/approachDetailed interviews were carried out in 2016 with 10 CAEs from the EY Excellence in Integrated Reporting Awards for South Africa. An interpretive approach involving thematic content analysis was used to construct key themes which provided the CAE’s initial perception of the IAF’s role in IRP.FindingsDespite the current role being limited, the findings suggest that the IAF has unexploited potential to improve the IRP. These roles include: providing assurance on data integrity; reviewing risks and opportunities; evaluating the adequacy of governance and risk management controls and giving assurance on the IRP. A benefit to the IAFs involvement in the IRP relates to their extensive knowledge of the business. The lack of skills in the IA profession is an area of concern, as there is a shortage of capacity and specialist skills.Research limitations/implicationsThe interpretive style will assist IAFs to understand and define their role in the IRP, as well as to follow best practice in the IRP.Originality/valueThis paper is the first to explore the views and make recommendations on the role of the IAF in the IRP. This paper can be seen as an important contribution to academic research as the role of IAF in the IRP is exploratory in a global context.

The influence of the chief audit executive’s leadership style on factors related to internal audit effectiveness

PurposeThe purpose of this paper is to investigate the relationship between the leadership style of a chief audit executive (CAE) and the perceived effectiveness of the internal auditing (IA) function that he/she leads. Perceived IA effectiveness is based on identified attributes in the literature influencing IA effectiveness. The aim of this paper is thus to expand the IA effectiveness debate by adding individual differences in CAEs’ leadership styles as a research focus.Design/methodology/approachA quantitative approach is followed. A survey was conducted on a sample of 58 IA students enrolled in a master’s degree programme at a South African university; all students hold senior positions in IA.FindingsThe study confirms that the CAE leadership style significantly influences the identified attributes of perceived IA effectiveness. It further shows that the traditional conceptualisation of leadership (as transformational, transactional and/or laissez-faire) might not be appropriate for or compatible with leaders of professional teams in a regulated environment.Practical implicationsPractically, the study identifies and explores attributes influencing IA effectiveness that are within the purview of the CAE’s leadership style and within his/her ability to influence. This information could (re)direct leadership development training programmes presented in industry and by the Institute of Internal Auditors (IIA), and at organisational level, it could inform appointment and retention and succession practices for heads of and senior management in IA.Social implicationsCAEs are cautioned about the limitations imposed by laissez-faire leadership on IA effectiveness. They should strive to become both transformative and transactional leaders as it has a significant influence on the effectiveness of their IA functions, and by being more effective, they can demonstrate the value proposition of IA. Organisations need to create the environment in which CAEs can act as transformational and transactional leaders. The IIA, as the pre-eminent professional body, could become involved in developing leadership skills of its members. The IIA could provide guidance on leadership styles for CAEs and could also offer formal training initiatives to internal auditors on skills needed to lead IA teams.Originality/valueThis paper may open a new research area in IA effectiveness by focussing on the role and leadership qualities of the CAE.

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

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.

Factors Related to Internal Auditors' Organizational-Professional Conflict

SYNOPSIS Due to the unique nature of their position, internal auditors often experience organizational-professional conflict (OPC). It is important to understand the nature of OPC and its implications for various stakeholders. Using a large data-set of survey responses from chief audit executives, we examine the effect of factors unique in internal audit settings on chief audit executives' OPC. We find that perceptions of job autonomy, tenure with the organization, reporting to the audit committee, and using the internal audit function as a management training ground are significantly related to internal auditors' OPC. We also find that OPC is negatively related to respondents' identification with the organization but not with their professional identification. Our findings have implications for organizational policies related to internal auditing and to external stakeholders.

The impact of internal audit function characteristics on internal control quality

PurposeThis paper aims to investigate the association between internal audit function (IAF) characteristics and internal control quality.Design/methodology/approachUsing data gathered from 59 chief audit executives from Tunisian listed companies, this paper uses a regression model to examine research hypothesis related to the association between IAF characteristics and internal control quality.FindingsThe findings of the current study reveal that internal control quality is significantly and positively associated with IAF competence, internal audit quality control assurance level, follow-up process and audit committee’s involvement in reviewing the internal audit program and results.Practical implicationsThe findings have significant implications for IAF wishing to enhance their effectiveness, by recognizing the impact of the IAF’s characteristics on internal control quality. The findings of this study also have significant implications for regulatory bodies who are concerned with the internal control quality, managers and audit committees who determine IAF investment, oversight IAF activities and assess internal auditors’ performance.Originality/valueThis study helps fill a gap in the extant literature where existing empirical evidence of how the IAF characteristics influences the quality of the financial reporting process in emerging markets is scant.

Corporate Governance on the Performance of Internal Auditors in Thailand Public Limited Company

<em>The issue of performance of internal auditors is important since Thailand was also affected by the accounting scandals. The expanded scope in the definition of internal auditing and new regulatory requirements such as the Sarbanes-Oxley Act 2002 has increased the demands on internal auditing. This study was conducted to examine the relationship between the corporate governance on the performance of internal auditors in Thailand public limited companies. In this study, corporate governance relates to the board of directors size and audit committee size to the performance of the internal auditor. To achieve this objective, two hypotheses were developed based on previous studies and the agency theory. Survey questionnaires were sent to the Chief Audit Executives (CAEs) to determine the effectiveness on their performance based on the professional standards issued by the IPPF (2017) indicators. A total of 520 questionnaires were distributed, but only 146 were usable. Multiple regressions were used to test the relationship between the variables. The result showed that there is insignificant relationship between board of director’s size and internal auditors’ performance. This study however found that audit committee size has a positive relationship on the performance of internal auditors. Therefore, audit committee need to increase higher responsibility with regard to corporate governance by overseeing financial reporting and internal control matters.</em>

The Value to Management of Using the Internal Audit Function as a Management Training Ground

SYNOPSIS This study examines how using the internal audit function as a management training ground (MTG) impacts managers' reliance on internal auditor recommendations. While prior research suggests that using internal audits as a MTG can adversely affect financial reporting quality, external audit fees, and internal audit efficiency, many internal audit functions use this practice. We study how this practice influences another important stakeholder—senior management. Based on survey results of 355 chief audit executives (CAEs), we find that CAEs perceive senior management to be more likely to use recommendations from MTG internal auditors than non-MTG internal auditors. To bolster the validity of these findings and provide evidence as to why this is the case, we conduct two experiments with 147 executives (47 MTurk workers) with an average of about 25 (13) years of experience. The experimental results confirm the survey results. We also find that the key reason why managers rely more on MTG than non-MTG recommendations is that MTG internal auditors are perceived to have more natural ability, which is a key driver in managers' reliance decisions. Taken together, our research provides the first empirical evidence that there are positive consequences to using the internal audit function as a MTG in contrast to the negative consequences previously reported. Data Availability: Please contact the authors.

Compensation of Internal Auditors Empirical Evidence for Different Impact Factors

This paper examines the different factors which impact the compensation level of chief audit executives (CAE) and sheds light on often unobservable and, therefore, opaque drivers of CAE remuneration. An ordered logistic regression is used to analyze the effects of internal audit function (IAF) competences, stakeholder relationships, and firm complexity on the CAE compensation using survey data from 212 CAEs from a broad spectrum of companies and industries. The results of the study identify IAF competence and independence as fundamental drivers of CAE compensation and provide evidence that firm complexity in terms of foreign sales, listing status and need for monitoring constitute additional salary determinants related to the IAF environment. Our results are based on questionnaire data and subject to a possible response bias as they rely in part on the participants’ assessment of a given situation. This paper provides a benchmark for CAE compensation levels in Austria, Germany and Switzerland and offers insights on different company and IAF inherent factors that can be associated with varying salary outcomes. This study is the first to investigate the factors driving the overall compensation level of CAEs and by providing empirical evidence regarding determinants of CAE compensation.

Chief audit executives' perceptions of drivers of moral courage: Tunisian evidence

A string of accounting-related scandals has revealed key shortcomings in internal auditor truthfulness. These scandals have led researchers, professional organisations and institutions to question causes of internal auditor silence and the failure of ethical guidelines. This study responds to these questions by revealing moral courage as the missing ingredient in internal auditor ethical instruction and as the tool needed for internal auditors to preserve their integrity and overcome their fears. Building on what is currently known of internal auditors and moral courage, this study sheds light on professional and ethical requirements placed on internal auditors to tell the truth, and it emphasises the role of moral courage in guiding their ethical behaviours. It also considers what must be known about the development of moral courage among internal auditors and seeks to identify the factors that promote internal auditors' moral courage through 30 structured interviews with chief audit executives.

Chief audit executives' perceptions of drivers of moral courage: Tunisian evidence

Chief audit executives' perceptions of drivers of moral courage: Tunisian evidence

Cultural differences and similarities between German and Chinese internal audit functions

Cultural differences influence the behavior of companies, including management styles, relationships with employees, stake- and shareholders or social responsibility. Obviously, the concept of corporate governance encompassing the Internal Audit Function (IAF) is seen differently in different cultures. Therefore, conformance with the globally effective “International Professional Practice Framework” (IPPF) for Internal Auditors presuming a culture-free, completely homogeneous IAF with uniform working standards worldwide, seems more than difficult. The focus of this study is to compare the IAF characteristics in China and Germany, based on data from Chief Audit Executives (CAE) from both countries. We identify more (culturally influenced) differences than similarities between the German and Chinese IAF, although there can be found a number of fundamental political, economic and cultural similarities between both countries.

The Effects of Cultural Dimension on the Internal Audit Function - A Worldwide Comparison of Internal Audit Characteristics

Using a multinational sample of companies from different industries together with the five cultural dimensions of Hofstede (2001) as proxies for national culture, we analyze how cultural differences across countries affect the organization and work of internal audit functions (IAF). We use a unique research focus and a multinational dataset that examine the influence of national culture on IAFs in multiple dimensions. We cover all five Hofstede’s cultural dimensions to obtain a holistic view on the effects of national culture and directly link them, to relevant proxies, which describe the structure and work of the IAF. Our dataset is based on the so-called Common body of knowledge - study from the IIA, representing 166 different countries and 3,323 Chief Audit Executives (CAE) responses from a broad industry and size range. Our results indicate a positive association between the cultural dimensions, long-term orientation and uncertainty avoidance, and an objective and independent IAF. In contrast, individualisms does not seem to be supportive for an objective and independent IAF. We contribute to the existing literature with our exploratory study in several ways. First of all, we use a completely new research approach and dimension of IAF research. Second, our study shows that different cultural dimensions have significant effects on specific IAF characteristics. With the operationalization of IIA’s ten Core Principles, we try to find a comprehensible way to measure typical factors of an effective work and structure of the IAF. Our results should open new research streams on the internationalization and effects of culture on the IAF.