Internal Auditor Objectivity Research Articles

Independence and objectivity of internal auditors within provincial governance systems

The study addresses the dearth of research on internal audit activity independence (IAAI) and internal auditors' objectivity within South Africa's (SA) provincial governance systems, despite their crucial role in government department performance. A mixed research approach was employed, using 260 purposely selected participants. Questionnaires, telephone interviews, and focus group discussions were used as data collection instruments. A triangulation of descriptive statistics and thematic analysis was applied to report the findings. The study found that management is not taking timely corrective action based on audit findings and recommendations. Internal auditors have friendship relationships with auditee employees, sectional heads are not cooperating with the internal audit function (IAF), and management has a negative perception of the IAF, viewing it more as a fault-finder than as adding value to the organization. Furthermore, the study's insights offer practical implications for improving internal audit practices within provincial governance systems, thereby facilitating better governance and operational efficiency.

The role of internal auditing in corruption control and enhancing corporate governance: A board of directors’ outlook

Businesses are incorporating internal audits into their corporate governance systems at an increasing rate. This article explores how internal auditing regulates corruption, enhances corporate governance, and investigates the potential of internal auditing as a means to combat corruption. The specific function of internal auditors in identifying control defects, preventing and detecting fraud, and promoting ethics is examined. By assessing risks, monitoring compliance, and detecting misconduct, internal auditors enhance corporate governance, according to this study (Koutoupis et al., 2018; Boskou et al., 2019). It emphasizes the objectivity, competence, and independence of internal auditors. Additionally, the report explores the potential benefits of implementing advanced technology, data analytics, and continuous monitoring to enhance internal audits. The findings of the study demonstrate that internal auditing is an essential component in the fight against corruption and the maintenance of good corporate governance. In doing so, it highlights the significance of having strong internal audit functions as well as a culture that is both ethical and open. The conduct of internal audits has the potential to improve corporate governance, reduce instances of misconduct, and ensure that a business will continue to be profitable in the future.

The Influence of Independence, Objectivity, Proficiency and Professional Accuracy of Internal Auditors on Fraud Prevention in X Hospital

Hospital is a health service institution that provides complete individual health services that provide inpatient, outpatient and emergency services. In carrying out hospital operations, it is possible for fraud to occur. This study aims to determine whether the independence, objectivity, skills, and professional accuracy of the internal auditors affect the prevention of fraud in X Hospital. This research uses a population with a total of 54 respondents. The type of data used in this study is quantitative data using primary data sources derived from questionnaires distributed to employees at X Hospital and then processed using SPSS. The results of the study show that (1) the independence of the internal auditors has a significant effect on fraud prevention, (2) the objectivity of the internal auditors has a significant effect on fraud prevention, (3) the competence of the internal auditors has a significant effect on fraud prevention and (4) the professional accuracy of the internal auditors has a significant effect on fraud prevention.

Pengaruh Kualitas Auditor Internal dan Efektivitas Komite Audit terhadap Korupsi Di BUMN

This study aims at examining the effect of quality of internal auditors and the effectiveness of audit committees on corruption in State-Owned Enterprises (SOE). The quality of the internal auditors is proxied by the competence (experience, certification, training) and objectivity of the internal auditors. Meanwhile, the audit committee is proxied by size, independence, number of meetings, and expertise of the audit committee. The research method used is a quantitative method with the type of hypothesis testing research. The population of this study were state-owned enterprises listed on the Indonesia Stock Exchange (IDX) in 2016 - 2020. Sampling used purposive sampling and obtained a sample of 20 companies with a total of 100 observations over 5 years. This study uses secondary data obtained from the company's annual report. The internal auditor objectivity and audit committee independence were excluded from hypothesis testing, because they have constant values during the year of observation. Simultaneously the quality of internal auditors (experience, certification, training) and audit committee effectiveness (size, number of meetings, expertise) have a significant negative effect on corruption. Meanwhile, partially only the experience of internal auditors has a negative effect on corruption. Internal auditor certification, internal auditor training, audit committee size, number of audit committee meetings, and audit committee expertise have no effect on corruption.

The objectivity of accounting professionals based in India

PurposeThis study aims to examine the objectivity of accounting professionals based in India.Design/methodology/approachTo examine the objectivity of accountants based in India, this study performs an experiment using a well-established instrument from prior literature. The authors asked accounting professionals based in India to act as either the seller or buyer in a hypothetical acquisition scenario. Participants were asked to evaluate the obsolescence of an apparel company’s inventory, assessing both the probability of inventory obsolescence and the likelihood they would propose an inventory write-down.FindingsThe results indicate external auditors and tax professionals were able to remain objective, reflected in the consistency of their assessments across the buyer and seller conditions. Internal auditors were less objective, evaluating inventory obsolescence as more likely when their client was considering buying a subsidiary than when their client was considering selling a subsidiary. Internal auditors were also more likely to recommend an inventory write-down adjustment when hired by the buyer than when hired by the seller.Originality/valueThis study informs regulators and accounting professionals. Offshoring has “prompt(ed) questions regarding the factors that affect the quality of work in India” (Dickey et al., 2022, p. 680). While the authors do not prescribe specific actions, this study provides evidence on the decision-making process of accounting professionals based in India that regulators might use to craft policy. Furthermore, this study responds to calls for additional evidence on the decision-making process of accounting professionals based in India (Spilker et al., 2016; Mohapatra et al., 2015), and for evidence on the objectivity of internal auditors (Burt and Libby, 2021; Stewart and Subramaniam, 2010).

Internal audit and financial performance of Yemeni commercial banks: Empirical evidence

This study seeks to verify the contribution of internal audit (IA), especially its role in improving financial performance in Yemeni commercial banks, with a specific focus on three factors, namely: the independence and objectives of IA, the quality of IA and the size of IA. This study reviews some existing literature on the contribution and role of IA in improving financial performance. It relies on available data from questionnaires. 90 questionnaires were distributed to nine commercial banks in Yemen (23 branches) working under the supervision of the Central Bank of Yemen; 81 questionnaires (90%) were regained and used in the process of analysis. To analyze the data, three analysis approaches were used, including description, correlation, and regression. The results showed that the IA has a significant impact on the overall performance of Yemeni commercial banks. Furthermore, the results showed that the auditors’ efficiencies, as well as their financial and accounting experiences, have a significant and positive impact on financial performance. It was revealed that the independence and objectivity of internal auditors are highly insignificant for financial performance. However, the size of IA and the frequency of the auditors’ meetings have a negative and significant effect on financial performance. This study provides some recommendations for improving the effectiveness of IA, which in turn will contribute to improving financial performance.

Bank Specific Determinants of Internal Audit Effectiveness: Evidence from Private Banks in Ethiopia

This study has examined factors that affect internal audit effectiveness in the Ethiopian private commercial banks. Five hypotheses were formulated based on a comprehensive review of past literature. The study used primary sources of data through questionnaires. A cross-sectional survey design was employed, purposive sampling method was used and data were collected using structured questionnaires, with total of 168 questionnaires were distributed to internal auditors of all Private commercial banks, and 147 (a 87.5% response rate) had collected. The data was analyzed through with SPSS version 20 and regression analyses were carried out to examine the attributes of internal audit effectiveness. All of independent variables are making 60% explained internal audit effectiveness. The study found that there are significant positive relationships between the factors (Independence and objectivity of internal auditors, Competency of internal audit staffs, Existence of audit committees) and internal audit effectiveness. However, Organizational Setting and Management support have no significant effect on internal audit effectiveness. But, private commercial banks should understand that the contributions of these variables were collectively significant to identify any non-compliance activities in their office and to add values for the internal audit effectiveness. This study provides useful information to practitioners and academics who are interested in identifying the determinants of internal auditing effectiveness. Keywords : Internal audit effectiveness, independence and objectivity, organizational setting and Audit committees. DOI: 10.7176/EJBM/13-5-04 Publication date: March 31 st 2021

Examining Types of Audit Judgment and Objectivity Threat: Empirical Findings from Public and Private Sector Internal Auditors in Malaysia

Increasing number of litigation suits against internal auditors has proved that there is heightened scrutiny on the quality of internal auditor’s judgment. As internal auditor’s judgment relies highly upon by the stakeholders, this paper aims to identify the types of audit judgment deemed to be critical for the success of an audit engagement. It also explores the types of objectivity threat experienced by Malaysian internal auditor. The present study also examined if there had been significant difference between objectivity threat experienced by public sector internal auditors and those of the private sector. The paper opted for an exploratory study using the questionnaires. A total of 150 copies of questionnaire were distributed to internal auditors working in private and public sectors. The findings indicated risk judgment (judgment on existing and emerging risk faced by organisation) as the most critical success factor in internal audit engagement. The findings also revealed that social pressure, cognitive biases, and intimidation as the top three threats that could threaten internal auditor objectivity, thus possibly affect internal auditor ability to make an objective judgment. However, this study found that there was no significant differences between the objectivity threats experienced by internal auditors in the private sector and those in the public sector. The research extent internal auditing literatures which focuses on the factors influencing internal auditor’s objectivity, but tended to omit the impact of the objectivity on influencing internal auditor’s judgment. This study has provided evidence of potentially serious risk of objectivity threats that may impair the internal auditors’ objectivity, thus reducing their ability to make an objective judgment. This paper fulfils an identified need to study flaws in internal auditor’s judgment and the existences of objectivity threat in Malaysian internal audit environment regardless either in public or private sector.Increasing number of litigation suits against internal auditors has proved that there is heightened scrutiny on the quality of internal auditor’s judgment. As internal auditor’s judgment relies highly upon by the stakeholders, this paper aims to identify the types of audit judgment deemed to be critical for the success of an audit engagement. It also explores the types of objectivity threat experienced by Malaysian internal auditor. The present study also examined if there had been significant difference between objectivity threat experienced by public sector internal auditors and those of the private sector. The paper opted for an exploratory study using the questionnaires. A total of 150 copies of questionnaire were distributed to internal auditors working in private and public sectors. The findings indicated risk judgment (judgment on existing and emerging risk faced by organisation) as the most critical success factor in internal audit engagement. The findings also revealed that social pressure, cognitive biases, and intimidation as the top three threats that could threaten internal auditor objectivity, thus possibly affect internal auditor ability to make an objective judgment. However, this study found that there was no significant differences between the objectivity threats experienced by internal auditors in the private sector and those in the public sector. The research extent internal auditing literatures which focuses on the factors influencing internal auditor’s objectivity, but tended to omit the impact of the objectivity on influencing internal auditor’s judgment. This study has provided evidence of potentially serious risk of objectivity threats that may impair the internal auditors’ objectivity, thus reducing their ability to make an objective judgment. This paper fulfils an identified need to study flaws in internal auditor’s judgment and the existences of objectivity threat in Malaysian internal audit environment regardless either in public or private sector.

Do Management Training Grounds Reduce Internal Auditor Objectivity and External Auditor Reliance? The Influence of Family Firms

We test competing theoretical perspectives of family firm governance in two separate studies by investigating whether family firm control moderates the detrimental effect of a management training ground (MTG) on internal auditor objectivity and on the external auditor’s decision to rely on the internal audit function (IAF). In Study 1, we assess the objectivity of internal auditors working under an IAF that serves as a MTG or non-MTG and located in a family or non-family firm. A key result of Study 1 is the mitigating role of family firm control, as we find that the objectivity of internal auditors is reduced when the IAF serves as a MTG but only in non-family firms. When the IAF is located in a family-controlled firm, the objectivity of internal auditors is unaffected by the opportunity to be promoted into management positions outside of the IAF. In Study 2, we utilize a controlled laboratory experiment with experienced Big 4 auditors as participants and examine their decision to rely on an IAF when it serves as a MTG. Our analyses indicate that external auditors reduce their reliance on non-family firm IAFs that are also MTGs and their decision is fully mediated by the perceived objectivity of non-family firm internal auditors. In contrast, external auditors’ reliance on family firm IAFs and their perceptions of internal auditor objectivity are unaffected under a MTG regime. The results of Studies 1 and 2 provide support for the alignment perspective of family firms.

The Effect of Internal Auditors’ Engagement in Risk Management Consulting on External Auditors’ Reliance Decision

We examine external auditors’ decisions to use the evidence or direct assistance of internal auditors when those auditors engage in consulting on enterprise risk management. Although such consulting provides value to an organization, it can also put the objectivity and independence of internal auditors at risk. We hypothesize that external auditors’ reliance on the internal audit function depends on the effectiveness of the audit committee monitoring the internal auditors’ activities. We also hypothesize that external auditors’ perception of the objectivity and independence of internal auditors mediates the reliance decision. We analyze these hypotheses using a 2 × 2 between-subjects design with 92 certified external auditors. Confirming the hypotheses, we find that external auditors’ reliance on the internal audit function is highest when the latter provides risk management consulting under the supervision of a strong audit committee. It is lower if the internal audit function provides only assurance (under either a weak or strong audit committee) and lowest if it provides consulting under a weak audit committee. The mediation analysis shows that the effect of audit committee effectiveness on the reliance decision is mediated by external auditors’ perception of internal auditors’ objectivity.

The Practices and Effectiveness of Internal Auditing among Public Higher Education Institutions, Ethiopia

The existence of multi-dimensional measures of internal audit effectiveness, and the findings of most prior studies are not consistent. As a result of this, to add knowledge to the existing literature and to give direction to the institutions, the study focused on the comparison of the practices and effectiveness of internal auditing among public higher education institutions in Ethiopia. With regards to the sampling techniques employed towards achieving the objective of the study, proportional stratified random sampling, purposive sampling and census were used for the selection of sample institutions, the relevant department and the appropriate respondents respectively. Following this, a total of one hundred sixty (160) questionnaires were distributed to the internal auditors of the sampled institutions out of which one hundred twenty-one (121) questionnaires were effective. The internal auditors were picked from eighteen sample universities out of the 30 target universities. The respondents were considered based on their direct attachment to the study area. By using analysis of moment structures (AMOS), the confirmatory factor analysis was used to identify a set of items which are strongly related to the variables. The Chi-Square test was applied to analyze the data. Top management support, organizational independence, adequate and competent internal auditors, internal audit charter, quality of internal audit work, career and advancement, management perception of internal audit function value, information technology, and objectivity of internal auditors were used as the proxy measures of internal auditing practices, whereas auditees’ evaluation, added contribution of internal audit, and auditing quality were used as the proxy measures of internal audit effectiveness. Out of these 12 variables employed in the confirmatory factor analysis, only 9 variables (top management support, organizational independence, adequate and competent internal auditors, internal audit charter, quality of internal audit work, information technology, objectivity of internal auditors, auditees’ evaluation, and auditing quality) were supported for further analysis. The findings of the study signified that, statistically, there was no significant difference in internal auditing practices and effectiveness among the public higher education institutions. The following could be the reasons for this insignificant difference: first, most public higher education institutions in Ethiopia are similar in policies, procedures, organizational contexts, rules and regulations, and organizational structure; and second, all the public higher education institutions share the same internal audit manual. It can be concluded that the use of electronic technology or modern auditing system instead of traditional auditing systems will improve the auditing activities of the institutions.

The Effect of Internal Auditors’ Engagement in Risk Management Consulting on External Auditors’ Reliance Decision

We examine external auditors’ decisions to use the evidence or direct assistance of internal auditors when those auditors engage in consulting on enterprise risk management. Although such consulting provides value to an organization, it can also put the objectivity and independence of internal auditors at risk. We hypothesize that external auditors’ reliance on the internal audit function depends on the effectiveness of the audit committee monitoring the internal auditors’ activities. We also hypothesize that external auditors’ perception of the objectivity and independence of internal auditors mediates the reliance decision. We analyze these hypotheses using a 2x2 between-subjects design with 92 certified external auditors. Confirming the hypotheses, we find that external auditors’ reliance on the internal audit function is highest when the latter provides risk management consulting under the supervision of a strong audit committee. It is lower if the internal audit function provides only assurance (under either a weak or strong audit committee) and lowest if it provides consulting under a weak audit committee. The mediation analysis shows that the effect of audit committee effectiveness on the reliance decision is mediated by external auditors’ perception of internal auditors’ objectivity.

STANDARDIZATION OF INTERNAL SHARIA AUDIT

The significant growth rates of the Islamic economy and the great interest in Islamic financial products and services from among other non-Islamic partners have determined the need to tighten control over the observance of Sharia norms and rules by Islamic Financial Institutions. Internal audit has long established itself as one of the most effective means of internal control and improving the efficiency of organizations. That is why AAOIFI has developed a new standard, “Internal Sharia Audit,” which should form the basis for the operation of the largest IFIs in Malaysia and the Gulf countries. For Russia, this standard is of particular interest in the changing context of financial markets and the redistribution of investment flows. The paper provides a brief overview of the most significant provisions of the presented standard. Details were considered regarding significant changes from the earlier standard released by AAOIFI. Based on the fundamental principles of audit activity, special attention is paid to the organizational independence and objectivity of internal Sharia auditors, as well as to quality control of the audit procedures. As in the standard itself, the paper analyses the requirements for the skill level of internal Sharia auditors

PENGARUH KOMPETENSI INTERNAL AUDITOR, OBJEKTIVITAS INTERNAL AUDITOR DAN KEBERANIAN MORAL TERHADAP EFEKTIVITAS AUDIT INTERNAL DENGAN DUKUNGAN MANAJEMEN SENIOR SEBAGAI VARIABEL MODERASI

The formulation of the problem in this study was to know how the effect of internal Internal Auditor Competence, Internal Auditor Objectivity and Moral Courage on the Effectiveness of Internal Audit with Senior Management Support as Moderating Variables (Empirical Study on Banking in Lubuklinggau City, South Sumatera Province. The type of research used associative research. The data used primary data and secondary data. The population and sample in this study were 31 respondent in Lubuklinggau city. Data collection techniques were using interview techniques and questionnaires. The analysis technique used qualitative analysis and quantitative analysis. The result of this study indicated that internal auditor competencies gave significantly affect the effectiveness of internal audits, internal auditor objectivity gave significantly affect the effectiveness of internal audits, moral courage gaeve significantly affect the effectiveness of internal audits, senior management supported moderates internal auditor competence in a pure modertor on the effectiveness of internal audits, supported senior management moderates internal auditor objectivity by moderating moderator on the effectiveness of internal audit and senior management support moderating moral courage by moderating equations to the effectiveness of internal audits.

Assessing the Reliability of the Internal Audit Functions: The Issues

This paper examines the issues in internal audit reliability. It specifically provides conceptual and practical insights into some of the consequential issues worth pondering about when assessing the reliability of the internal audit functions. Particularly, the paper identified and discussed four (4) of such issues namely: competency of internal auditors, level of management support/influence, independence and objectivity of internal auditors; and regulatory issues. The paper took a conceptual approach and draws its basis from the institutional and protection motivation theories. Based on literature and other documentary evidences, the paper took the position that the four identified factors would most likely influence the internal audit reliability. Among other policy implications, the paper, therefore, proposes a conceptual research framework to be empirically examined by future researchers.

Do fine feathers make a fine bird? The influence of attractiveness on fraud‐risk judgments by internal auditors

Independence and objectivity are key principles assumed to underlie internal auditors' fraud‐risk judgments. However, a substantial body of evidence suggests that physical attractiveness of suspects may influence internal auditors' fraud‐risk judgments. In this experimental study we investigated whether internal auditors are susceptible to appearance‐related biases, or whether they correct for them due to their expertise and motivation. A total of 193 internal auditors were presented a misappropriation‐of‐assets scenario in which the attractiveness of a suspect was manipulated. To determine whether professional expertise is associated with increased resilience to appearance‐related biases, their fraud‐risk judgments were contrasted with those acquired from 240 subjects without auditing experience (“naive subjects”). In line with our predictions, attractiveness modulated naive subjects' fraud‐risk judgments, whereas internal auditors did not show any indication for appearance‐related biases. Our findings suggest that internal auditors' experience and motivation may immunize them to the phenomena of physical attractiveness stereotyping and the attractiveness halo effect.

Determinant Independence and Objectivity of Internal Auditors in Indonesian Government Organizations

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External auditor reliance on the work of the internal audit function in Jordanian listed companies

This study investigates the factors that influence external auditor (EA) reliance on the work of the internal audit function (IAF) in Jordanian listed companies (JLCs). It evaluates the effect of internal auditor objectivity, competence and work performance as perceived by senior Jordanian EAs. The study employs a mixed method comprising a survey‐based factorial experiment in addition to semi‐structured interviews. The results, based on 35 fully‐crossed factorial experiments and nine interviews with senior EAs and external audit managers, show that IAF objectivity has the greatest influence on the EA's decision to rely on the work of the IAF, followed closely by IAF competence and IAF work performance. Further, there was a significant interactive effect between objectivity and competence, indicating that the EAs do not consider the influence of individual factors in isolation. In interviews, the EAs put forward many reasons for the importance of all three of the independent variables. Our results have direct implications for organizations as well as for professional bodies and regulatory authorities charged with encouraging the development of IAFs.

The effect of internal auditor competence and objectivity, and management support on effectiveness of internal audit function and financial reporting quality implications at local government

Governmental internal auditors have an important function at the central and local government, but the internal audit function is still not effective, and needs to be improved. Therefore, this research aims to examine the effect of the internal auditor competence and objectivity, and management support on the effectiveness of the internal audit function, and its implication on the quality of financial reporting. This research uses survey method with description verification approach, and it is conducted on local government at Java Island, Indonesia. Primary data was statistically tested by using SEM partial least square (PLS). This research has shown that the internal auditor competence and objectivity, and management support have significant influence to the effectiveness of the internal audit function. Moreover, the internal auditor competence and objectivity and the effectiveness of the internal audit function have significant influence to the financial reporting quality.

FACTORS AFFECTING INTERNAL AUDIT FUNCTION EFFECTIVITY (INTERNAL AUDITOR COMPETENCE AND OBJECTIVITY, MANAGEMENT SUPPORT, AND ORGANIZATION CULTURE) AT LOCAL GOVERNMENT

Internal audit function is important at the central and local government, but is still weak, and it needs to be improved. Therefore, this research aims to examine the effect of the internal auditor competence and objectivity, management support and organisation culture on the effectiveness of the internal audit function. This research uses survey method with description verification approach, and it is conducted on local government in Lampung Province, Indonesia. Primary data are statistically tested by using SEM partial least square (PLS). This research has shown that the internal auditor competence and objectivity, and organisation culture has significant influence to the effectiveness of internal audit function, but management support does not.