Recruiting Internal Auditors: The Effects of Using the Internal Audit Function as a Management Training Ground and Performing Consulting Services

This study examines the effects of using the internal audit function as a management training ground (MTG) and fraud magnitude on internal fraud reporting decisions. Two experiments examine (1) internal auditors’ reporting behaviors, and (2) other employees’ willingness to report directly to internal audit. In the first experiment, experienced internal auditors indicate that the use of internal audit as a MTG may negatively impact fraud reporting likelihood by internal auditors to the Chief Audit Executive (CAE). Further, using the internal audit function as a MTG inhibits the sense of urgency internal auditors feel to report large fraudulent acts. The second experiment compares management accountants’ preferences for reporting to an anonymous third-party hotline versus reporting directly to internal audit. The results indicate a preference for the hotline that increases with a MTG. This preference is fully mediated by the perceived trustworthiness of internal audit, which is negatively impacted by a MTG.

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The Effects of Using the Internal Audit Function as a Management Training Ground or as a Consulting Services Provider in Enhancing the Recruitment of Internal Auditors

Accounting Horizons ◽

10.2308/acch-50925 ◽

2014 ◽

Vol 29 (1) ◽

pp. 115-140 ◽

Cited By ~ 28

Author(s):

F. Greg Burton ◽

Matthew W. Starliper ◽

Scott L. Summers ◽

David A. Wood

Keyword(s):

Internal Audit ◽

Management Training ◽

Job Applicants ◽

Data Availability ◽

Professional Organizations ◽

Internal Auditing ◽

Business Professionals ◽

Negative Stereotypes ◽

Internal Auditors ◽

Consulting Services

SYNOPSIS This paper examines factors that influence job applicants' willingness to apply for positions in internal auditing. We predict and find evidence that job applicants are dissuaded from applying for internal audit positions. In two separate experiments involving participants at seven universities, we discover that this phenomenon is most prevalent for applicants with business experience. Experienced applicants are 20 and 33 percent less willing to apply for a position if it is labeled as “internal audit” versus “accounting” in the two experiments, respectively. In addition, we find that the only experimental condition that increases interest in applying for an internal audit position for experienced applicants occurs when the position advertises the combination of (1) a short stint in internal auditing and then a move from internal audit into a management position, and (2) work primarily related to consulting services rather than assurance services. As a potential explanation for these findings, we find evidence that participants believe other business professionals have negative stereotypes of internal auditing—which likely dissuade potential job applicants from applying to work in internal audit. The results should prove informative to practitioners, internal audit professional organizations, and business professionals concerned with high-quality corporate governance. Data Availability: Contact the authors.

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The Effect of Using the Internal Audit Function as a Management Training Ground on the External Auditor's Reliance Decision

The Accounting Review ◽

10.2308/accr-10136 ◽

2011 ◽

Vol 86 (6) ◽

pp. 2131-2154 ◽

Cited By ~ 100

Author(s):

William F. Messier ◽

J. Kenneth Reynolds ◽

Chad A. Simon ◽

David A. Wood

Keyword(s):

Internal Audit ◽

Management Training ◽

Audit Fees ◽

Data Availability ◽

External Audit ◽

Internal Auditors ◽

External Auditors ◽

Internal Audit Function ◽

Management Positions ◽

The Many

ABSTRACT This study examines how using the internal audit function (IAF) as a management training ground (MTG) affects external audit fees and the external auditors' perceptions of the IAF. Over half of all companies that have an IAF specifically hire internal auditors with the purpose of rotating them into management positions (or cycle current employees into the IAF for a short stint before promoting them into management positions). Using archival data, we find that external auditors charge higher fees to companies that use the IAF as a MTG. Using an experiment, we provide evidence as to why fees are higher. Specifically, we find that external auditors perceive internal auditors employed in an IAF used as a MTG to be less objective but not less competent than internal auditors employed in an IAF not used as a MTG. These results have important implications for the many companies that use their IAF as a MTG. Data Availability: Contact the authors. Data provided by the Institute of Internal Auditors Research Foundation are subject to restrictions.

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

Accounting Horizons ◽

10.2308/acch-52046 ◽

2018 ◽

Vol 32 (2) ◽

pp. 121-140 ◽

Cited By ~ 16

Author(s):

Joseph V. Carcello ◽

Marc Eulerich ◽

Adi Masli ◽

David A. Wood

Keyword(s):

Financial Reporting ◽

Internal Audit ◽

Management Training ◽

Audit Fees ◽

Senior Management ◽

Data Availability ◽

Negative Consequences ◽

Internal Auditors ◽

Internal Audit Function ◽

Survey Results

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.

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Factors that Influence the Internal Audit Function's Maturity

Accounting Horizons ◽

10.2308/horizons-18-127 ◽

2020 ◽

Vol 34 (4) ◽

pp. 57-74

Author(s):

Giuseppe D'Onza ◽

Gerrit Sarens ◽

Steven DeSimone

Keyword(s):

Internal Audit ◽

Management Training ◽

Data Availability ◽

Internal Auditing ◽

Internal Auditors ◽

Body Of Knowledge ◽

Internal Audit Function ◽

The Common ◽

Components Analysis ◽

Future Practice

SYNOPSIS We identify several dimensions of the internal audit function (IAF) as a composite measure of IAF maturity by using a Principal Components Analysis (PCA). Our data are from the Common Body of Knowledge in Internal Auditing (CBOK) 2015 dataset. We find confirmation for our four hypotheses, where the support the IAF receives from the board, diversified training programs, the use of the IAF as a management training ground (MTG), and the maturity of the risk management (RM) system are significantly related to IAF maturity. Our hypotheses are verified both at a global and a regional level. Regarding control variables, IAF age, chief audit executive (CAE) tenure, CAE certifications, and unlisted companies are also significant at a global level. We discuss implications of these findings for future practice and research. Data Availability: Please contact the Institute of Internal Auditors Research Foundation.

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Using the Internal Audit Function as a Management Training Ground: Is the Monitoring Effectiveness of Internal Auditors Compromised?

SSRN Electronic Journal ◽

10.2139/ssrn.1946518 ◽

2012 ◽

Cited By ~ 6

Author(s):

Margaret H. Christ ◽

Adi Masli ◽

Nathan Y. Sharp ◽

David A. Wood

Keyword(s):

Internal Audit ◽

Management Training ◽

Internal Auditors ◽

Internal Audit Function

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External Auditors' Involvement in the Internal Audit Function's Work Plan and Subsequent Reliance Before and After a Negative Audit Discovery

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-51486 ◽

2016 ◽

Vol 35 (4) ◽

pp. 159-173 ◽

Cited By ~ 4

Author(s):

Byron J. Pike ◽

Lawrence Chui ◽

Kasey A. Martin ◽

Renee M. Olvera

Keyword(s):

Internal Control ◽

Internal Audit ◽

Internal Controls ◽

Professional Standards ◽

Data Availability ◽

Internal Auditors ◽

External Auditors ◽

Internal Audit Function ◽

Anchoring Bias ◽

Before And After

SUMMARY To reduce redundancies and increase efficiency in the evaluation of internal controls (PCAOB 2007, 402–403), professional standards encourage coordination between external auditors and their clients' internal audit function (IAF). Recent surveys of internal auditors find that a component of this coordination is external auditors' involvement in developing the IAF's audit plans. Nevertheless, it is not known how such involvement affects external auditors' reliance on the internal control test work of the IAF, either before or after a negative audit discovery. Based on an experiment with 107 experienced auditors, we find that external auditors involved in the development of the IAF's audit plan perceive the IAF as more objective and that both objectivity and involvement contribute to these auditors' placing more reliance on the IAF as compared to external auditors with no involvement. This initial reliance results in the involved auditors' proposing reductions to the audit budget and re-performing less of the IAF's work. Consistent with an anchoring bias, we find that involvement leads to external auditors' continuing to place greater reliance on the IAF's work, even after they become aware of a negative audit discovery that should not have occurred had the client's controls been effective. Data Availability: Data are available from the authors on request.

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Adherence to the Internal Audit Core Principles and Threats to Internal Audit Function Effectiveness

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-19-072 ◽

2021 ◽

Author(s):

Christopher G Calvin

Keyword(s):

Corporate Governance ◽

Future Development ◽

Internal Audit ◽

Internal Auditors ◽

The Core ◽

Body Of Knowledge ◽

Internal Audit Function ◽

Lower Likelihood ◽

Practitioner Survey ◽

The Impact

I investigate the impact that adherence to the Institute of Internal Auditors' Core Principles has on the likelihood that an internal auditor's effectiveness is threatened through pressure to modify valid audit findings. I use responses from the Institute of Internal Auditors' 2015 Common Body of Knowledge Practitioner Survey to show that higher adherence to the Core Principles by both internal audit staff and CAEs is associated with a lower likelihood of being pressured to modify audit findings. I also explore which of the ten Core Principles are dominant in explaining these associations to inform the future development of the internal audit profession. Finally, I investigate the sources of pressure to modify audit findings and explore the effect the Core Principles have in mitigating pressure from each source. My findings are relevant to the Institute of Internal Auditors, internal audit practitioners, and academics interested in internal audit or corporate governance.

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A versenyképesség és a társaságok belső ellenőrzése (Competitiveness and corporate internal audit)

Vezetéstudomány / Budapest Management Review ◽

10.14267/veztud.2012.11.02 ◽

2012 ◽

pp. 19-33

Author(s):

Mária Bordáné Rabóczki

Keyword(s):

Corporate Governance ◽

Audit Committee ◽

Supervisory Board ◽

Internal Audit ◽

Senior Management ◽

Internal Auditors ◽

Mutual Dependency ◽

Internal Audit Function ◽

External Auditor ◽

The Impact

A cikk a belső ellenőrzésnek a hatékony társaságirányításhoz való hozzájárulását és ennek a versenyképességre gyakorolt hatását vizsgálja. A belső ellenőrzés és a társaságirányítás kölcsönös összefüggésben áll egymással. Nemcsak a belső ellenőrzés hat a társaságirányításra, hanem a releváns társaságirányítási struktúrák, emberi kapcsolatok és magatartásformák jelentős hatást gyakorolnak a belső ellenőrzés színvonalára és hatékonyságára. A cikk ezért különös figyelmet szentel a belső ellenőröknek az igazgatósággal, az auditbizottsággal/felügyelőbizottsággal, a menedzsmenttel és a könyvvizsgálóval való kapcsolatainak vizsgálatára. Rávilágít a belső ellenőrzés legfőbb funkciójára, amely objektív bizonyosságot nyújt az igazgatóság és a felső vezetők számára a kockázatok azonosítására, kezelésére és elfogadható szintre történő csökkentésére szolgáló kontrollfolyamatok megfelelőségéről és hatékonyságáról. A bemutatott belső ellenőrzési modell azt a szemléletet közvetíti, hogy a belső ellenőrzés által nyújtott objektív bizonyosság megszerzése nemcsak a jogszabályoknak vagy az ajánlásoknak való megfelelés, hanem a társaságok versenyképessége szempontjából is kiemelkedő jelentőségű. _________ The purpose of this paper is to consider the contribution of internal audit to the sound corporate governance and the impact of that on the competitiveness of the companies. There is a mutual dependency between internal audit and corporate governance. Not only the internal audit has impact on the corporate governance but the relevant governance structures, relationships and behaviour influence the level and effectiveness of the internal audit. Therefore the present paper is highly concerned with the internal auditors` relationships with the board, audit committee/supervisory board, senior management and the external auditor. It highlights the internal audit function, that provides objective assurance to the board and senior management about the adequacy and effectiveness of the processes by which risks are identified, managed, controlled and mitigated to acceptable levels. The internal audit model demonstrated represents an approach, according to that getting objective assurance provided by internal audit is important not only to be in line with laws and recommendations but to facilitate the corporate competitiveness.

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Understanding the internal audit function in a digitalised business environment

Journal of Accounting & Organizational Change ◽

10.1108/jaoc-11-2019-0114 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Nathanaël Betti ◽

Gerrit Sarens

Keyword(s):

Data Analytics ◽

New Technologies ◽

Internal Audit ◽

Business Environment ◽

Future Research ◽

The European Union ◽

Content Type ◽

Internal Auditors ◽

Internal Audit Function ◽

The Impact

Purpose This paper aims to gain an in-depth understanding of how the internal audit function evolves in an increasingly digitalised business environment. Design/methodology/approach This paper is based on 29 semi-structured interviews with members of management committees and internal auditors based in Belgium. Findings The analysis reveals that a digitalised business environment affects the internal audit function in three respects. First, it impacts its scope. The agility of the internal audit planning and the required digital knowledge are expected to increase and information technology (IT) risks gain importance, especially cybersecurity threats. Second, the demand for consulting activities performed by internal auditors is higher and third, digitalisation modifies the working practices of internal auditors in their day-to-day tasks. New technologies such as data analytics tools are being implemented progressively in internal audit departments and digital skills are considered a critical asset. Research limitations/implications This research was conducted in the European Union and gathers opinions of members of management committees and internal auditors. Future research could focus on other internal auditing stakeholders in other legal contexts. Practical implications The internal audit function needs to integrate IT and data analytics skills. In addition, the internal audit function should develop consulting activities to help organisations deal with the digitalisation of the business environment. Originality/value The impact of digitalisation on the internal audit function and its effect on internal audit practices is an underexplored area.

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