Audit Executives Research Articles

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.

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.

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 quality control effect of PDCA cycle in operation safety check

Objective To explore the quality control effect of PDCA cycle in surgical safety verification. Methods The first class of quality control information was collected for the operation safety inspection implementation situation of operating room in this hospital from April to September 2015.In addition, PDCA circulation method was used to analyze the operation safety inspection situation of quality control inspection to find the weak links in the process of implementation.In addition, the specific measures were taken to have 3 months of learning and continuous improvement.Additionally, the operation safety inspection implementation rates before and after PDCA would be compared. Results For the comparison before and after overall safety inspection implementation rates, and the comparison of implementation rates before and after the weak links of medication, anaesthesia and nursing, the difference had statistical significance(P<0.05). Conclusions The application of PDCA cycle to the nursing quality control of surgical safety verification can provide insight into the weak links in the quality control management of surgical safety verification.It can indicate the direction of decision for the manager, significantly improve the operation safety audit execution rate and nursing management quality. Key words: PDCA cycle; Surgical safety check; Quality control; Nursing management

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.

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.

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

Association between Detailed Disclosure on External Audit Execution and Audit Quality

Association between Detailed Disclosure on External Audit Execution and Audit Quality

Analytical Procedures Phase of PCAOB Audits: A Note of Caution in Selecting the Forecasting Model

The best-practices execution of PCAOB audits requires the use of Analytical Procedures at the Planning and the Substantive Phases. This often finds the auditor using the standard OLS two-parameter linear regression forecasting model [OLSR] to project account-values from the Planning Phase to balances expected at Year-End so as to effect a variance analysis at the Substantive Phase. This is the point of departure of our study. We examine the practical effect of using the OLSR model in a time-series context of the audit. Specifically, this research report provides information on the use of the OLSR model as the model of choice in the audit context compared to the ARIMA(0,2,2)/Holt model which is usually the standard choice for an exponential smoothing model in the presence of autocorrelation of data in the time-stream; autocorrelation is the usual case for longitudinal series taken in the audit. Results: We find that there are reasons to condition the selection of the forecasting model in the Analytical Procedures context based upon autocorrelation in the data-stream. When the time-stream of data exhibits autocorrelation the OLSR model fails in a statistically significant manner to capture the next or one-period ahead client value at the same rate as does the ARIMA/Holt model. This then has implications for the False Negative Investigation Error.

Resourcing the Internal Audit Function: How Effective is the Audit Committee?

The aim of this study is to investigate the extent to which an Audit Committee (AC)’s own governance characteristics impact on its role effectiveness in achieving enhanced resourcing and by extension, improved the scope and quality of the Internal Audit Function (IAF). Sample is drawn from top 300 companies listed on the Australian Stock Exchange (ASX). This study combines data from a questionnaire administered to the Internal Audit Executive (IAE) with information from annual reports and financial databases. Hypotheses are developed and tested using multiple regression analysis. This analysis is supplemented by insights from a comparative case study for two companies in the sample. Results reveal that AC size is significantly positively related to the financial resources (budget) allocated to IAF, while both AC financial expertise and AC size are significantly positively related to IAF labour hours. Results also confirm that IAF’s with higher resourcing are able to concentrate those resources on areas expected of a high quality IAF. Further, comparative case study analysis gives insights to the superior ways a larger size AC can be effective in fulfilling its oversight role, building its working relationships and obtaining resources for the IAF. Study contributes to current auditing-related governance literature by introducing a comprehensive empirical model of AC effectiveness in facilitating the scope and quality of the IAF’s work. Also, the findings have implications for regulators and the Institute of Internal Auditors (IIA) in terms of the composition and functioning of ACs.

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.

Factors that enhance the quality of the relationships between internal auditors and auditees: Evidence from Italian companies

This study examines the relationships between internal auditors and auditees in an attempt to identify the factors that influence the abilities of internal auditors (IAs) to build high‐quality relationships with auditees. The analysis is based on the responses of 78 Italian Chief Audit Executives who took part in a survey in 2014. The results indicate two factors that are positively and significantly associated with high‐quality IA–auditee relationships: (1) the integration of senior management's inputs in the setting up of audit plans; and (2) the use of the internal auditing function (IAF) as a management training ground. The results also show a positive but marginally significant relationship between the regular revision of audit methodologies and high‐quality IA–auditee relationships. Surprisingly, the results indicate a negative and significant association between the diversification of an IAF's activities and an IAF's ability to create positive collaboration with auditees.

Determining The Effectiveness of Going Concern Audit Opinion by ISA 570

The research aims to address the Going Concern Audit Opinion published by the auditor with an ISA 570 basis. The application of ISA 570 will help to facilitate the auditor in publishing the Going Concern Audit Opinion. The Going Concern Audit Opinion is the opinion which is released by the auditor to assure whether the company is enabled to maintain its viability. The difference between SA 341 and ISA 570 will to contribute effective impact to the management for elucidating the management plan undertaken to overcome any difficulty they may encounter. The ISA 570 will represent that the auditor intensely guides the management in plan or strategy development for upgrading the finance and non-finance performance. The research approach is the Non-Positivistic approach from an Interpretive Perspective. The researcher obtains the source and type of data from key persons consisting of all auditors working in Public Accountant Firms (PAF) in Surabaya. The data collecting technique uses observation, interview and documentation. The result of the research shows the ISA 570 application gives the facility for the auditors in publishing a Going Concern Audit Opinion. In the audit execution, the auditor will accentuate the strategic plan for resolving the problems with which the company deals.

Internal Audit Quality: Insights from Audit Committee Members, Senior Management, and Internal Auditors

SUMMARYWe investigate the concept of internal audit function (IAF) quality from a multi-stakeholder perspective through conducting 36 interviews with key IAF stakeholder groups: audit committee members, senior management, internal audit executives, and outsourced internal audit partners from the major accounting firms. We adapt established quality frameworks that suggest quality is a five-dimensional construct (including input, process, output, outcome, and contextual dimensions) to the internal audit context. We find that the various stakeholder groups focus on different quality dimensions in their evaluation of IAF quality. For example, the groups focus on the process dimension (internal audit executives), output dimension (audit committee members and internal audit partners), or outcome dimension (senior management and internal audit partners). We also find that the five dimensions comprise multiple indicators of IAF quality. We conduct six supplementary interviews with external audit partners to compare their insights on IAF quality to the focal IAF stakeholder groups. External auditors evaluate quality via the output dimension after an ex ante assessment focusing on the input dimension. Finally, we contribute to the IAF quality literature by developing a multi-stakeholder IAF quality framework.

Exploring perceptions of data analytics in the internal audit function

ABSTRACTThe objective of our study is to understand the use of data analytics within the internal audit function (IAF) and to investigate the types of tools internal auditors use, given the large amounts of data available to them for analytic purposes. We interview the Chief Audit Executive (CAE) in six for-profit and six not-for-profit organizations across several industries, including manufacturing, government services, energy, banking, and higher education. Our intent was to gather descriptive information with respect to the IAF, as well as quantifiable responses to specific questions about the role of data analytics in each CAE’s IAF. Our findings indicate that CAEs value professional certifications and the use of data analytics in the IAF. CAEs report that they employ data analytics at different times and for different purposes and that they are dedicating a considerable amount of the IAF budget in support of data analytics. Our findings should be of interest to CAEs as they consider various possible tools and training to support data analytics within their organisations and to academics who wish to include data analytics courses or topics in the accounting and information systems curricula to prepare students for the workplace.

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

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.

Diffusion of Corporate Risk‐Management Characteristics: Perspectives of Chief Audit Executives through a Survey Approach

AbstractThis study examines how corporate risk‐management characteristics in Australian public universities have diffused under an environment of conflicting management cultures. The findings reveal that corporate risk‐management characteristics have diffused in a pluralist form to satisfy stakeholders of different management approaches across its governance levels as opposed to a unilateral form aligned to the corporate approach. The accepted practice of this adapted version challenges the existing notion that the adoption of corporate control processes in the public sector is problematic, and provides insights into the emergence of a hybrid control process to address the needs of multiple stakeholders. These findings have policy implications for defining a new hybrid governance‐control paradigm for the public sector as an alternative to the corporate‐influenced control paradigm, and provide avenues for further research to confirm the phenomenon with other corporate control processes, public‐sector entities, and if so its impact on effective governance.

Factors associated with internal audit function involvement with XBRL implementation in public companies: An international study

We examine the relationships of national legal system, company size, and corporate governance quality with internal audit function (IAF) involvement with eXtensible Business Reporting Language (XBRL) implementation in public companies. Our data source is The Institute of Internal Auditors' Global Internal Audit Common Body of Knowledge (CBOK) database, from which we extract responses from 692 chief audit executives (CAEs) for our investigation. We find evidence of differential effects of company size on IAF involvement with XBRL implementation, depending on the national legal system. In civil law countries, IAFs of small companies have significantly higher levels of XBRL involvement than do IAFs of large companies, whereas, in common law countries, IAFs of large companies have higher levels of involvement than do those of small companies. Finally, we find evidence that corporate governance quality is positively associated with IAF involvement with XBRL implementation.