Factors influencing the implementation of risk-based auditing

2017 ◽  
Vol 25 (3) ◽  
pp. 361-375 ◽  
Author(s):  
Nor Hafizah Zainal Abidin
Keyword(s):  
Risk Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Reporting Quality ◽  
Listed Companies ◽  
Risk Environment ◽  
Content Type ◽  
Internal Audit Function

Purpose The purpose of this paper is to examine, from the agency perspective, the influence of internal audit and audit committee attributes, as well as risk management and internal control systems, on the implementation of risk-based auditing among public-listed companies in Malaysia. Design/methodology/approach A questionnaire survey was distributed to the in-house internal audit function in approximately 620 public-listed companies. Consequently, data from 117 heads of the internal audit function was collected and analyzed. Findings The findings indicate that “audit committee review and concern” and “risk management system” are significantly and positively related to the implementation of risk-based auditing. Most importantly, the results indicate the importance of audit committee inputs and concerns in reviewing internal audit activities. Empirically, the findings also suggest that a more formalized risk environment would foster the existence of a strong risk-aware culture and hence provides a strong foundation for internal audit to implement risk-based auditing. However, internal audit experience, size of internal audit function, audit committee qualifications, and internal control system are not found to be significant predictors of the presence of risk-based auditing. Research limitations/implications This study examined only risk-based auditing practices in the in-house internal audit function of public-listed companies; hence, the findings cannot be generalized to all Malaysian-listed companies that outsource or co-source their internal audit activities. Social implications An effective internal monitoring mechanism and better quality of internal audit work will minimize potential risks that prevent the achievement of company objectives, reduce propensity to falsify financial information, and improve financial reporting quality. Originality/value This study contributes evidence concerning the relationship between internal monitoring mechanisms and the implementation of risk-based auditing among in-house internal audit activity.

Audit committee, internal audit function and earnings management: evidence from Jordan

2019 ◽  
Vol 27 (1) ◽  
pp. 72-90 ◽  
Author(s):  
Ebraheem Saleem Salem Alzoubi
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Internal Audit ◽  
Reporting Quality ◽  
Discretionary Accruals ◽  
Least Squares Regression ◽  
Content Type ◽  
Internal Audit Function ◽  
The Impact

PurposeThis study aims to examine the influence of audit committee existence and internal audit function on the earnings management of companies.Design/methodology/approachThis paper uses generalised least squares regression to investigate the influence of audit committee existence, internal audit function and the interaction of these two mechanisms on earnings management for a sample of 86 industrial companies listed on the Amman Stock Exchange over a four-year period from 2007 to 2010. The paper uses the extent of discretionary accruals as the proxy for earnings management.FindingsThis paper finds that audit committee existence and the internal audit function reduce the level of earnings management. The number of meetings between the audit committee and internal audit function also reduces discretionary accruals. Overall, this study finds that audit committee existence and internal audit function decrease earnings management and improve the financial reporting quality.Originality/valueThe main contribution of this study is that it investigates the combined effects of audit committee existence and internal auditors on earnings management. Furthermore, this study is the initial paper to examine the impact of audit committee and internal audit on earnings management in Jordan.

Evidence on the relation between audit committee financial expertise and internal audit function effectiveness

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ahmed Atef Oussii ◽  
Neila Boulila
Keyword(s):  
Financial Reporting ◽  
Work Experience ◽  
Audit Committee ◽  
Committee Member ◽  
Internal Audit ◽  
Reporting Quality ◽  
Certified Public Accountant ◽  
Content Type ◽  
Internal Audit Function ◽  
Financial Expertise

PurposeThe purpose of this paper aims to investigate whether the source of audit committee accounting expertise influences the internal audit function (IAF) effectiveness in the Tunisian setting.Design/methodology/approachIn the analysis, the authors conduct a survey of chief internal auditors from Tunisian listed companies. Then, a multivariate regression analysis is performed in order to analyze the relationship between audit committee financial expertise and IAF effectiveness.FindingsThe findings of the present study show that audit committee accounting financial expertise is most likely to be positively associated with the implementation of internal audit report recommendations. The authors also find that only financial expertise gained from accounting education and experience (e.g. an audit committee member with experience as a certified public accountant, auditor, chief financial officer or chief accounting officer) is associated with a stronger implementation of IAF recommendations, but not financial expertise gained from work experience in finance positions.Practical implicationsThese results may have implications for regulatory bodies. They can provide a better understanding of the role of the audit committee expertise in monitoring internal audit processes. The major contribution of this study is that the audit committee's oversight role is strengthened if the committee members have accounting and auditing expertise.Originality/valueThe study extends prior literature by providing evidence that the source of audit committee accounting financial expertise enhances internal audit effectiveness beyond the outcomes it has on financial reporting quality. The study also contributes to the ongoing debate in the corporate governance literature concerning the definition of the financial expertise of audit committee members.

Internal audit functions, financial reporting quality and moderating effect of senior management support

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdulkadir Madawaki ◽  
Aidi Ahmi ◽  
Halimah @ Nasibah Ahmad
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Internal Audit ◽  
Reporting Quality ◽  
Listed Companies ◽  
Senior Management ◽  
Financial Reporting Quality ◽  
Management Support ◽  
Content Type ◽  
Management Actions

Purpose The purpose of this paper is to demonstrate the relationship between internal audit functions (IAF) and financial reporting quality (FRQ) and whether such a relationship is moderated by senior management support (SMS) in listed companies in Nigerian Stock Exchange (NSE). Design/methodology/approach This research is a cross-sectional study, using primary data in the form of a survey sent to 175 listed companies in NSE. A total of 149 questionnaires have been collected and analysed out of which 97 were found to be useful and used in the final analysis. Findings The findings indicate a positive and significant relationship between internal audit qualities of work performed, internal control activities, coordination between internal and external auditors and FRQ and this finding was also supported by SMS as a moderator. However, the results show a negative and insignificant relationship between internal audit competency, organisational status and FRQ. Research limitations/implications The findings support the assumption with regard to agency theory. The board should support the IAF to serve as an effective monitoring mechanism in minimising opportunistic management actions. Regulators should also ensure adequate structures that will strengthen the organisational status of the internal auditors to perform towards improving FRQ. Originality/value The study contributes to the existing literature by assessing the effect of IAF on FRQ as moderated by SMS.

Influence of internal audit reporting line and implementing internal audit recommendations on financial reporting quality

2019 ◽  
Vol 28 (1) ◽  
pp. 26-50 ◽  
Author(s):  
Abdulaziz Alzeban
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Negative Impact ◽  
Empirical Work ◽  
Internal Audit ◽  
Reporting Quality ◽  
Positive Influence ◽  
Financial Reporting Quality ◽  
Annual Reports ◽  
Content Type

Purpose This study aims to explore the influence of internal audit (IA) reporting lines and the implementation of IA recommendations (IMPLEMENT) on financial reporting quality (FRQ). Design/methodology/approach Data were obtained from the annual reports of 201 UK listed companies, and also from survey questionnaires completed by the chief audit executives working within those companies. Two measures are used as proxies of FRQ: abnormal accruals and accrual quality. Findings Findings indicate that when IA reports directly to the audit committee (AC), there is a significant positive influence upon FRQ. Conversely, when IA reports to the chief executive officer (CEO) or chief financial officer (CFO), there is a negative impact on FRQ. It is further shown by the results that lower income-increasing accruals are evident when there is greater IMPLEMENT, thereby showing an accompanying positive influence on FRQ. Moreover, the results indicate that greater adoption of such recommendations is also associated with internal reporting lines, i.e. when IA reports directly to the AC, FRQ results improved. Originality/value These findings contribute to the literature in the field of IA reporting, by introducing new insights regarding reporting lines and IMPLEMENT, and the influence of these on FRQ, and by establishing those insights through empirical work undertaken in the UK where little research on this issue has been reported.

scholarly journals The role of effective audit committee in strengthening the financial reporting: Evidence from Jordanian listed companies

2012 ◽  
Vol 9 (3) ◽  
pp. 59-68 ◽  
Author(s):  
Mo’taz Amin Al-Sa’eed ◽  
Soud M. Al-Mahamid
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Listed Companies ◽  
International Standards ◽  
Future Research ◽  
External Audit ◽  
Cross Sectional ◽  
Study Results

This study aims to understand the features of an effective audit committee and its role in strengthening financial reporting. A questionnaire based survey was circulated to public listed companies on the Amman Stock Exchange (Banking, insurance, and financial institutions). The study was aimed at internal audit managers and finance managers. Out of 156 questionnaires, we received 110 back which represents a 71% response rate. The study results show that the research respondents have a good level of education and experience. In addition, there is a relationship between internal controls, international standards on auditing, institute of internal audit; Jordan securities commission requirements, external audit, understanding of audit committee functions, and financial reporting. Furthermore, the internal control, international standard on auditing and institute of internal audit, Jordan securities commission requirements, External audit, understanding of audit committee functions can explain a significant amount of the variability in financial reporting. Finally, the research results also show that age and gender make a difference for our respondents when they evaluate financial reporting. The study like other cross sectional studies is not free of limitations. Managerial implications and new avenues of future research are supplied. Future research also can borrow the research model and apply a longitudinal study to solve the cross sectional study problems.

scholarly journals Internal control, risk and Sharīʿah non-compliant income in Islamic financial institutions

2020 ◽  
Vol 12 (3) ◽  
pp. 401-417
Author(s):  
Mustafa Mohd Hanefah ◽  
Muhammad Iqmal Hisham Kamaruddin ◽  
Supiah Salleh ◽  
Zurina Shafii ◽  
Nurazalia Zakaria
Keyword(s):  
Risk Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Internal Audit ◽  
Operational Risk ◽  
The Body ◽  
Financial Reports ◽  
Content Type ◽  
Study Approach ◽  
Islamic Financial Institutions

Purpose The existence of internal control for Sharīʿah-compliance promotes reasonable assurance that the Islamic financial institution’s (IFI’s) objectives are achieved in the following categories, namely, the effectiveness and efficiency of operations, the reliability of financial reporting and the level of compliance with applicable laws and regulations, as well as accounting and auditing standards. Sharīʿah non-compliant income (SNCI) is an important issue in IFIs’ operations. Thus, the purpose of this paper is to identify issues related to governance and internal control of SNCI in selected IFIs in Malaysia. Design/methodology/approach This research uses a case study approach to gather data on the measures of governance and risk management in relation to the internal control for SNCI in IFIs. Interviews were conducted with officers of the Sharīʿah and internal audit departments on internal control practices regarding SNCI. Findings Regulator’s guidelines on SNCI are simple and brief, lacking rigour in terms of governance, risk management and audit procedures. The section on SNCI is only a brief statement within the Bank Negara Malaysia’s Guidelines on Financial Reporting for Islamic Banking Institutions and also in the Operational Risk Integrated Online Network system operated by IFIs. Most of the respondents in the interviews suggested that there should be a proper guideline in determining the classification of SNCI. Second, although IFIs have established the purification account to manage SNCI, the real practice varies from one IFI to another. Third, although there are supposedly documented procedures established in relation to management and administration of SNCI, the following events still occur in practice, namely, no authorisation from the Sharīʿah Committee (SC) on various types of income channelled to the SNCI account; unauthorised use of SNCI for other purposes; SNCI not being reported in the annual financial reports; and distribution of SNCI prior to obtaining the SC’s consent. Fourth, there is an absence of Sharīʿah risk assessment conducted on operational risk by IFIs to identify any potential Sharīʿah non-compliant event. Research limitations/implications This research contributes to the importance of Islamic corporate governance theory and Sharīʿah risk management, as well as strengthening the case for reporting SNCI to shareholders. It also contributes to the body of knowledge on the capability of the management in managing the internal control system of IFIs’ SNCI. Originality/value A new internal control assessment matrix is proposed for Sharīʿah-compliance in IFIs.

scholarly journals An Analysis of Internal Audit Investment Among Top Malaysian Listed Companies

2019 ◽  
Author(s):  
Mohamad Naimi Mohamad Nor ◽  
Suhaimi Ishak
Keyword(s):  
Corporate Governance ◽  
Internal Control ◽  
Audit Committee ◽  
Economies Of Scale ◽  
Internal Audit ◽  
Listed Companies ◽  
Future Research ◽  
External Audit ◽  
Internal Audit Function ◽  
Code Of Corporate Governance

The importance of internal audit function in improving the company’s internal control risk management and corporate governance has been emphasized in the Malaysian Code of Corporate Governance (MCCG) and Bursa Malaysia Listing Requirements. Based on the Listing Requirements, Malaysian listed companies are required to establish the internal audit function, which is independent and this function must be supervised by the audit committee. Although the importance of internal audit function has been highlighted in various code of corporate governance, little is known about the investment made by the company in internal audit activity. This study capitalizes the publicly available data on internal audit cost and the type of internal function provider in Malaysia setting. The primary purpose of this study is to describe internal audit practices, especially on the internal audit budget in Malaysia for the year 2017 for top 300 companies. Based on the descriptive analysis, it is found that the internal audit fee is relatively lower than the cost of external audit and most of the companies’ internal audit function was carried out by in house teams. Also, the benefit from economies of scale is less pronounced in internal audit as compared to external audit services. Some further analyses were also conducted, and the article is ended recommendations for future research to be undertaken in investigating the internal importance audit in Malaysia.

scholarly journals The effect of applying COSO-ERM model on reducing fraudulent financial reporting of commercial banks in Jordan

2018 ◽  
Vol 13 (2) ◽  
pp. 107-115
Author(s):  
Abdul Aziz A. Abdul Rahman ◽  
Othman Hel Ajmi Al-Dhaimesh
Keyword(s):  
Risk Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Commercial Banks ◽  
Audit Committee ◽  
Internal Audit ◽  
Enterprise Risk Management ◽  
Fraudulent Financial Reporting ◽  
Corporate Governance Mechanisms ◽  
Enterprise Risk

This study aims to test the effect of applying the model of the Committee Sponsoring Organizations for enterprise risk management (COSO-ERM) on reducing fraudulent financial reporting in commercial banks operating in Jordan. Furthermore, the study identifies the role of each board of directors, audit committee, executive management, human resource management, and internal audit as one of the corporate governance mechanisms in enhancing the effectiveness of internal control systems. The study revealed an impact of applying the Committee of Sponsoring Organizations model for enterprise risk management (COSO-ERM) on preventing fraudulent financial reporting, where it reached influence around 77.8% on the dependent variable (fraudulent financial reporting). The study also found that each of internal control, event identification, risk assessment and response, and control activities variables affects dependent variable (fraudulent financial reporting) in commercial banks operating in Jordan.

scholarly journals Using triangulation to view internal audit’s governance functioning

2016 ◽  
Vol 13 (4) ◽  
pp. 287-296
Author(s):  
Christo Ackermann
Keyword(s):  
South Africa ◽  
Risk Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Audit Committees ◽  
Wide Audience ◽  
External Auditors ◽  
Reporting Practices

Internal audit departments of organisations are regarded as an integral component of the combined assurance model alongside the audit committee, management and the external auditors. The primary users of the work of internal audit are the audit committee, senior management, other levels of management and to some extent, the external auditors. This wide audience served by internal audit reinforces the importance of IAFs’ work, which deals with important aspects facing the entity. Internal audit is therefore able to reduce the lack of information availability for the audit committee on matters concerning risk management, internal control and governance. However, a study conducted on audit committee effectiveness, it was found that 40% of audit committees in national government departments in South Africa are not fully effective and are failing to contribute towards improving internal control, risk management, governance and financial reporting practices. Audit committees’ effectiveness in contributing to risk management, internal control and governance was measured at 63%, 76% and 62% respectively, in a comprehensive study on audit committees in the South African public sector. This indicates that their oversight in these areas, especially risk management and governance, is not yet effective. These findings are concerning given that audit committees have a legal mandate to assist government departments in these areas. Internal audit functions are key in assisting audit committees in their governance oversight responsibility. The present study reports on the extent to which internal audit in the eight metropolitan municipalities in South Africa assists audit committees in their governance oversight responsibility, focusing on the scope of work of internal audit with reference to its governance mandate. A data transformation triangulation design was followed to describe internal audit’s functioning

The impact of internal audit function characteristics on internal control quality

2018 ◽  
Vol 33 (5) ◽  
pp. 450-469 ◽  
Author(s):  
Ahmed Atef Oussii ◽  
Neila Boulila Taktak
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Audit Quality ◽  
Internal Audit ◽  
Audit Committees ◽  
Content Type ◽  
Internal Auditors ◽  
Control Quality ◽  
Internal Audit Function ◽  
The Impact

Purpose This paper aims to investigate the association between internal audit function (IAF) characteristics and internal control quality. Design/methodology/approach Using 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. Findings The 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 implications The 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/value This 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.

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