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

scholarly journals Does Internal Audit Function Quality Deter Management Misconduct?

2014 ◽  
Vol 90 (2) ◽  
pp. 495-527 ◽  
Author(s):  
Matthew S. Ege
Keyword(s):  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Audit Committees ◽  
Regulatory Requirements ◽  
Difference In Differences ◽  
External Auditors ◽  
Internal Audit Function ◽  
Auditor Quality ◽  
External Auditor

ABSTRACT Standard-setters believe high-quality internal audit functions (IAFs) serve as a key resource to audit committees for monitoring senior management. However, regulators do not enforce IAF quality or require disclosures relating to IAF quality, which is in stark contrast to regulatory requirements placed on boards, audit committees, and external auditors. Using proprietary data, I find that a composite measure of IAF quality is negatively associated with the likelihood of management misconduct even after controlling for board, audit committee, and external auditor quality. This result is robust to a variety of other specifications, including controlling for internal control quality and separate estimation during the pre- and post-SOX time periods. A difference-in-differences analysis indicates that misconduct firms have low IAF quality and competence during misconduct years and improve IAF quality and competence in the post-misconduct years. These findings suggest that regulators, audit committees, and other stakeholders should consider ways to improve IAF quality.

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

2018 ◽  
Vol 7 (4.38) ◽  
pp. 1338
Author(s):  
Sunita Lylia Hamdan ◽  
Nahariah Jaffar ◽  
Ruzanna Ab Razak
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Specific Interaction ◽  
Fraud Detection ◽  
Internal Audit ◽  
Internal Auditing ◽  
Internal Auditor ◽  
Internal Auditors ◽  
External Auditors

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

scholarly journals An analysis of audit committee effectiveness at the largest listed companies in South Africa from a CFO and audit committee perspective

2009 ◽  
Vol 9 (1) ◽  
Author(s):  
Ben Marx
Keyword(s):  
South Africa ◽  
Financial Reporting ◽  
Internal Control ◽  
Financial Literacy ◽  
Audit Committee ◽  
Listed Companies ◽  
Audit Committees ◽  
Chief Financial Officers ◽  
Subject Field ◽  
Effective Functioning

Purpose: The purpose of the study is to investigate and analyse the effective functioning of audit committees at the largest listed companies in South Africa.Problem investigated: The modern audit committee is often seen as the panacea of the corporate world and as such is looked upon to cure all the financial reporting and control-related problems of entities. Audit committees are, however, not always as effective as they are held to be, as is evidenced by the many well-known corporate scandals and business failures that occurred where audit committees existed and fraudulent financial reporting, audit failures, internal control breakdowns and other irregularities prevailed. The modern audit committee will be of value only if it is properly constituted, is functioning effectively and if its role is clearly understood by all the parties concerned. The research problem investigated stems precisely from this issue, and the paper therefore aims to analyse the effective functioning of the audit committees at the largest listed companies in South Africa. Methodology: The study empirically tested the audit committee practices at the largest listed companies in South Africa. This was done through questionnaires addressed to the CFOs and audit committee chairs. Findings: The study found that audit committees at the largest listed companies in South Africa are well established, properly constituted, have the authority and resources to effectively discharge their responsibilities and consist of members who act independently and who have the right mix of appropriate experience, financial literacy and financial expertise amongst their members. The audit committee's role was found to be generally well understood and supported by the board and the Chief Financial Officers. It was further found that the audit committees are effective in discharging their oversight responsibilities on the board's behalf, with the only real exception being their effectiveness regarding IT-related aspects. Value of research: The study provides valuable information on audit committee practices and the effectiveness of audit committees at the largest listed companies in South Africa. These findings can therefore serve as guidelines for best practice standards for audit committees at other companies and institutions. Conclusion: Audit committees at the largest listed companies in South Africa were found to be well established and according to the views of the CFOs and audit committee chairs to be functioning effectively. Further research regarding the subject field of audit committees should focus on the status and effective functioning thereof at smaller companies, unlisted entities, higher education institutions and public sector entities.

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.

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.

The Role of Accounting Mechanisms for Corporate Governance in Reducing Creative Accounting Practices in Telecommunications Sector Companies in Riyadh City: An Empirical Study: دور الآليات المحاسبية لحوكمة الشركات في الحد من ممارسات المحاسبة الإبداعية في شركات قطاع الاتصالات بمدينة الرياض: دراسة ميدانية

2020 ◽  
Vol 4 (15) ◽  
Author(s):  
Lamis Jameel Banasser, Maha Faisal Alsayegh
Keyword(s):  
Corporate Governance ◽  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Internal Auditors ◽  
External Auditors ◽  
Riyadh City ◽  
Creative Accounting ◽  
Telecommunications Sector

The study aimed to identify the role of accounting mechanisms for corporate governance in reducing creative accounting practices in telecommunications sector companies in Riyadh city. A descriptive analytical approach was followed to conduct the field study. Sample of the study consisted of members of the audit committee, internal auditors, accountants from the surveyed telecommunications’ sector companies, and the external auditors in the audit offices that specialized on auditing the examined sample of companies. Questionnaire was used as a data collection method. Results showed that activating the role of accounting mechanisms for corporate governance can greatly contribute in limiting creative accounting practices. As they are controlling mechanisms that capable of protecting companies, shareholders and stakeholders from any manipulation or misleading information in the financial statements. Further, internal audit plays a major role in limiting creative accounting practices by examining and evaluating the effectiveness of the internal control system. Furthermore, the independence and competence of the external auditor and his commitment to the rules of conduct and ethics of the profession contribute greatly in limiting creative accounting practices in the examined companies. The study recommended the necessity of holding specialized training courses for members of audit committees, internal auditors and external auditors on methods of detecting creative accounting practices to combat and reduce them.

Audit committee ownership and audit report lag: evidence from Australia

2020 ◽  
Vol 28 (1) ◽  
pp. 96-125
Author(s):  
Md. Borhan Uddin Bhuiyan ◽  
Mabel D’Costa
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Financial Statements ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Audit Report ◽  
Content Type ◽  
External Auditors ◽  
Using Data

Purpose This paper aims to examine whether audit committee ownership affects audit report lag. Independent audit committees are responsible for overseeing the financial reporting process, to ensure that financial statements are both credible and released to external stakeholders in a timely manner. To date, however, the extent to which audit committee ownership strengthens or compromises member independence, and hence, influences audit report lag, has remained unexplored. Design/methodology/approach This paper hypothesizes that audit committee ownership is associated with audit report lag. Further, the author hypothesize that both the financial reporting quality and the going concern opinions of a firm mediate the effect of audit committee ownership on audit report lag. Findings Using data from Australian listed companies, the author find that audit committee ownership increases audit report lag. The author further document that financial reporting quality and modified audit opinions rendered by external auditors mediate this positive relationship. The results are robust to endogeneity concerns emanating from firms’ deliberate decisions to grant shares to the audit committee members. Originality/value The study contributes to both the audit report timeliness and the corporate governance literatures, by documenting an adverse effect of audit committee ownership.

Academic Research on Communications Among External Auditors, the Audit Committee, and the Board: Implications and Recommendations for Practice

2008 ◽  
Vol 2 (1) ◽  
pp. A1-A8 ◽  
Author(s):  
Jeffrey Cohen ◽  
Lisa Milici Gaynor ◽  
Ganesh Krishnamoorthy ◽  
Arnold M. Wright
Keyword(s):  
Financial Reporting ◽  
Boards Of Directors ◽  
Audit Committee ◽  
Academic Research ◽  
Reporting Quality ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
External Auditors ◽  
Research Findings ◽  
Recommendations For Practice

SUMMARY: This article provides a summary of the academic research findings on the attributes of effective audit committees and potential threats to financial reporting quality that should lead to heightened auditor and audit committee sensitivity. The practice implications of this research are then discussed in terms of appropriate communications among auditors, audit committees, and boards of directors.

Fraudulent Financial Reporting: Consideration of Industry Traits and Corporate Governance Mechanisms

2000 ◽  
Vol 14 (4) ◽  
pp. 441-454 ◽  
Author(s):  
Mark S. Beasley ◽  
Joseph V. Carcello ◽  
Dana R. Hermanson ◽  
Paul D. Lapides
Keyword(s):  
Health Care ◽  
Corporate Governance ◽  
Financial Reporting ◽  
Financial Services ◽  
Audit Committee ◽  
Internal Audit ◽  
Financial Statement ◽  
Audit Committees ◽  
Financial Statement Fraud ◽  
Governance Mechanisms

This paper provides insight into financial statement fraud instances investigated during the late 1980s through the 1990s within three volatile industries—technology, health care, and financial services—and highlights important corporate governance differences between fraud companies and no-fraud benchmarks on an industry-by-industry basis. The fraud techniques used vary substantially across industries, with revenue frauds most common in technology companies and asset frauds and misappropriations most common in financial-services firms. For each of these three industries, the sample fraud companies have very weak governance mechanisms relative to no-fraud industry benchmarks. Consistent with prior research, the fraud companies in the technology and financial-services industries have fewer audit committees, while fraud companies in all three industries have less independent audit committees and less independent boards. In addition, this study provides initial evidence that the fraud companies in the technology and health-care industries have fewer audit committee meetings, and fraud companies in all three industries have less internal audit support. This study of more current financial statement fraud instances contributes by updating our understanding of fraud techniques and risk factors in three key industries. Auditors should consider the industry context as they evaluate the risk of financial fraud, and they should compare clients' governance mechanisms to relevant no-fraud industry benchmarks.

How Effective are Organizations' Internal Controls? Insights into Specific Internal Control Elements

2012 ◽  
Vol 6 (1) ◽  
pp. A31-A50 ◽  
Author(s):  
Dana R. Hermanson ◽  
Jason L. Smith ◽  
Nathaniel M. Stephens
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Financial Services ◽  
Audit Committee ◽  
Internal Audit ◽  
Internal Controls ◽  
Component Level ◽  
Public Companies ◽  
Tone At The Top ◽  
Survey Responses

SUMMARY Based on survey responses from approximately 500 Chief Audit Executives (CAEs) and other internal auditors, this article provides an insider's view of the perceived strength of organizations' internal controls (i.e., internal control over financial reporting) in the Control Environment, Risk Assessment, and Monitoring components of the Committee of Sponsoring Organizations' (COSO 1992a) Internal Control—Integrated Framework. Although the respondents largely rate control strength as relatively high, we identify several areas for potential improvement of internal controls, especially related to assessing the “tone at the top,” as well as following up on deviations from policy and management override of controls. In analyzing individual control elements, we find that public companies' controls are consistently rated as more effective than those of other organizations. We also find a number of interesting differences across key industries, especially in the Monitoring component, where banks and other financial services firms appear to have more robust Monitoring controls than do healthcare and other services firms. The component-level analysis reveals that internal control component strength is positively related to the CAE reporting primarily to the audit committee, public company status, and the average tenure of the internal audit function staff, among other findings. Based on the survey findings, we describe key implications relevant to internal and external auditors, accounting researchers and educators, and management.

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