Factors Associated with U.S. Public Companies' Investment in Internal Auditing

2005 ◽  
Vol 19 (2) ◽  
pp. 69-84 ◽  
Author(s):  
Joseph V. Carcello ◽  
Dana R. Hermanson ◽  
K. Raghunandan
Keyword(s):  
Audit Committee ◽  
Internal Audit ◽  
Cash Flows ◽  
Financial Service ◽  
Company Size ◽  
Internal Auditing ◽  
Public Companies ◽  
Ability To Pay ◽  
Factors Associated ◽  
Operating Cash Flows

Internal auditing has been the focus of much attention in recent years. This study examines factors associated with U.S. public companies' investment in internal auditing. Data from a survey administered to Chief Audit Executives of midsized U.S. public companies were supplemented with publicly available data. Based on data from 217 companies, the results indicate that total internal audit budgets (inhouse plus outsourced portions) are related to several factors associated with company risk, ability to pay for monitoring, and auditing characteristics. Specifically, we find evidence that internal audit budgets are positively related to company size, leverage, financial, service, and utility industries, relative amount of inventory, operating cash flows, and audit committee review of the internal audit budget. Total internal audit budgets are negatively related to the percentage of internal auditing that is outsourced. This study contributes to our understanding of internal audit services, and it allows companies to benchmark their investment in internal auditing.

Audit Committee Composition, “Gray Directors,” and Interaction with Internal Auditing

2001 ◽  
Vol 15 (2) ◽  
pp. 105-118 ◽  
Author(s):  
K. Raghunandan ◽  
Dasaratha V. Rama ◽  
William J. Read
Keyword(s):  
Audit Committee ◽  
Empirical Support ◽  
Internal Audit ◽  
Audit Committees ◽  
Internal Auditing ◽  
Public Companies ◽  
Internal Auditor ◽  
Blue Ribbon ◽  
Internal Auditors ◽  
Governance Process

The functioning of corporate audit committees was criticized in recent years by the Treadway Commission, the Public Oversight Board, the Kirk Panel, and the SEC Chairman. In response, the NYSE and NASD sponsored the Blue Ribbon Committee (BRC) on Improving the Effectiveness of Corporate Audit Committees. The BRC Report includes recommendations aimed at strengthening director independence and qualifications, and highlights the role of internal auditors in assisting audit committees in the corporate governance process. Moreover, the first three recommendations of the BRC relate to audit committee composition: absence of inside or “gray” directors, and presence of a member with financial expertise. This study examines the association between audit committee composition and the committee's interaction with internal auditing. Our results, based on responses from chief internal auditors of 114 public companies, indicate that committees comprised solely of independent directors and with at least one member having an accounting or finance background are more likely to (1) have longer meetings with the chief internal auditor; (2) provide private access to the chief internal auditor; and (3) review internal audit proposals and results of internal auditing. These findings provide empirical support for the BRC's recommendations related to audit committee composition.

scholarly journals Audit Committees Oversight Of Information Technology Risk

2003 ◽  
Vol 7 (4) ◽  
pp. 1-12 ◽  
Author(s):  
Linda B. Hadden ◽  
Dana R. Hermanson ◽  
F. Todd DeZoort
Keyword(s):  
Information Technology ◽  
Exploratory Study ◽  
Audit Committee ◽  
Audit Committees ◽  
Company Size ◽  
Factors Associated ◽  
It Risk

This exploratory study examines the role of the audit committee in overseeing information technology (IT) risk. We address the degree of audit committee oversight of specific IT risks, as well as factors associated with variations in audit committee IT oversight. Based on responses from 39 audit committee members, we found (1) little audit committee emphasis on oversight of IT risks, (2) audit committees involved with IT oversight focus on more traditional risks (e.g., monitoring), while very little attention is devoted to IT acquisition and implementation, and (3) the amount of IT oversight is positively associated with the responding members auditing experience and prior familiarity with the COBIT model for assessing IT risks. Audit committee independence, diligence, and expertise, company size, and industry were not significantly associated with IT oversight.

Factors associated with security/cybersecurity audit by internal audit function

2018 ◽  
Vol 33 (4) ◽  
pp. 377-409 ◽  
Author(s):  
Md. Shariful Islam ◽  
Nusrat Farah ◽  
Thomas F. Stafford
Keyword(s):  
Audit Committee ◽  
Internal Audit ◽  
Mixed Effect ◽  
Content Type ◽  
Internal Auditors ◽  
Factors Associated ◽  
Security Breaches ◽  
Internal Audit Function ◽  
Enterprise Risk

Purpose The purpose of the study is to explore the factors associated with the extent of security/cybersecurity audit by the internal audit function (IAF) of the firm. Specifically, the authors focused on whether IAF/CAE (certified audit executive [CAE]) characteristics, board involvement related to governance, role of the audit committee (or equivalent) and the chief risk officer (CRO) and IAF tasked with enterprise risk management (ERM) are associated with the extent to which the firm engages in security/cybersecurity audit. Design/methodology/approach For analysis, the paper uses responses of 970 CAEs as compiled in the Common Body of Knowledge database (CBOK, 2015) developed by the Institute of Internal Auditors Research Foundation (IIARF). Findings The results of the study suggest that the extent of security/cybersecurity audit by IAF is significantly and positively associated with IAF competence related to governance, risk and control. Board support regarding governance is also significant and positive. However, the Audit Committee (AC) or equivalent and the CRO role are not significant across the regions studied. Comprehensive risk assessment done by IAF and IAF quality have a significant and positive effect on security/cybersecurity audit. Unexpectedly, CAEs with security certification and IAFs tasked with ERM do not have a significant effect on security/cybersecurity audit; however, other certifications such as CISA or CPA have a marginal or mixed effect on the extent of security/cybersecurity audit. Originality/value This study is the first to describe IAF involvement in security/cybersecurity audit. It provides insights into the specific IAF/CAE characteristics and corporate governance characteristics that can lead IAF to contribute significantly to security/cybersecurity audit. The findings add to the results of prior studies on the IAF involvement in different IT-related aspects such as IT audit and XBRL implementation and on the role of the board and the audit committee (or its equivalent) in ERM and the detection and correction of security breaches.

Why did management and auditors fail to identify ineffective internal controls in their initial SOX 404 reviews?

2008 ◽  
Vol 7 (4) ◽  
pp. 338-354 ◽  
Author(s):  
Kam C. Chan ◽  
Picheng Lee ◽  
Gim S. Seow
Keyword(s):  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Internal Controls ◽  
Control Group ◽  
Corporate Boards ◽  
Content Type ◽  
Factors Affecting ◽  
Factors Associated ◽  
Client Relationship

PurposeThe purpose of this paper is to investigate the rationale for the failure of management and auditors to identify material internal control weaknesses (ICWs) in their initial Sarbanes‐Oxley Act of 2002 (SOX) 404 reviews, resulting in subsequent restatement of their opinions.Design/methodology/approachThe paper focuses on the factors associated with the failure of management and auditor to identify material internal controls weaknesses in their initial SOX 404 reports. Logistic regression is run on a sample of 56 firms that reported material internal controls weaknesses in their amended internal control reports and a control group of 344 firms that reported material internal controls weaknesses (i.e. ineffective internal controls) in their initial internal control reports for 2004.FindingsThe results show that firm size, the use of a Big 4 auditor, the ratio of non‐audit to total fees, and the need for accounting restatements are positively associated with the probability to file an amended internal control report. The number of ICWs and the number of audit committee meetings are negatively associated with the probability to file an amended internal control report.Practical implicationsThe paper's findings suggest that regulators and corporate boards should consider providing more guidelines on audit committee practices in addition to the audit committee structure. For example, more guidance by the board is needed to ensure that the audit committee is active in overseeing the company's auditor–client relationship and its internal audit function.Originality/valueEmpirical findings on factors associated with the failure of management and auditor to identify material ICWs in their SOX 404 review can contribute to an understanding of factors affecting the efficiency of the SOX 404 review by attributing such failure to either inherent factors such as operational complexity and industry membership or to managerial choices in auditor‐client relationship and corporate governance issues. An understanding of these factors can help companies and the Public Company Accounting Oversight Board and the Securities and Exchange Commission in their efforts to improve the effectiveness and the efficiency of the current SOX 404 process.

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.

scholarly journals PENGARUH LABA AKUNTANSI, ARUS KAS OPERASI, ARUS KAS INVESTASI, ARUS KAS PENDANAAN, DAN UKURAN PERUSAHAAN TERHADAP RETURN SAHAM

2021 ◽  
Vol 16 (1) ◽  
pp. 1
Author(s):  
Meta Nursita
Keyword(s):  
Stock Returns ◽  
Stock Return ◽  
Stock Exchange ◽  
Hypothesis Test ◽  
Cash Flows ◽  
Study Data ◽  
Company Size ◽  
Test Model ◽  
Operating Cash Flows ◽  
The Impact

This study aimed to examine the impact of accounting profit, operating cash flows, investment cash flows, financing cash flows and company size to stock returns on manufacturing firms sector for consumption by the corporate listed and registered under the Indonesia Stock Exchange within 2014 - 2016. This study employed Purposive Sampling method with a total of 39 companies taken as the sample in the present study. Data analysis process followed the following steps; descriptive statistical test, multicollinearity test, model fit test, regression model feasibility test, and hypothesis test. Statistical method used is panel data regression analysis. The result showed that accounting profit had partially significant impact on stock return; operating cash flows no had significant impact on stocks return; investment cash flows, and financing cash flows had no significant impact on stock return and company size had significant impact on stocks return. in addition, simultaneously, the results showed that the four aspects examined had statistically significant impact on stock return.

Drivers of stakeholders’ view of internal audit effectiveness

2018 ◽  
Vol 33 (1) ◽  
pp. 90-114 ◽  
Author(s):  
Lourens Erasmus ◽  
Philna Coetzee
Keyword(s):  
Audit Committee ◽  
Internal Audit ◽  
Principal Component ◽  
Senior Management ◽  
Audit Committees ◽  
Internal Auditing ◽  
Content Type ◽  
Key Stakeholders ◽  
Audit Effectiveness ◽  
Insight Into

Purpose The purpose of this study is to determine the differences in perception of the key stakeholders on the drivers of internal audit effectiveness, namely, senior management and the audit committee, in relation to identified measures. To be seen as an effective internal audit function, value needs to be added for both these stakeholders. It is thus important for internal auditing to obtain an understanding of what these stakeholders respectively perceive as the most prominent drivers of internal audit effectiveness. Design/methodology/approach Heads of internal audit functions (providing insight into the drivers), chairpersons of audit committees and senior management (providing insight into the measures) within the South African public sector responded to a survey. The data were subjected to an exploratory factor analysis and principal component analysis to reduce the set of items and to provide continuous scores for use in a multivariate multiple regression analyses. Findings Senior management and the audit committee differ in their level or order of prominence of the identified drivers that influence the identified measures of internal audit effectiveness. No statistical similarities in their level of views could be found. Originality/value To enhance the effectiveness of internal auditing, the internal audit functions should take cognisance of the difference in perceptions of its key stakeholders on the drivers of internal audit effectiveness, in relation to identified measures, to manage these relationships. No previous research could find that statistically compared views of senior management and the audit committee regarding the drivers of internal audit effectiveness.

Continuous Auditing and Risk-Based Audit Planning—An Empirical Analysis

2020 ◽  
Vol 17 (2) ◽  
pp. 141-155 ◽  
Author(s):  
Marc Eulerich ◽  
Christine Georgi ◽  
Alexander Schmidt
Keyword(s):  
Audit Committee ◽  
Research Question ◽  
Internal Audit ◽  
Positive Influence ◽  
Internal Auditing ◽  
Continuous Auditing ◽  
Audit Planning ◽  
Positive Effects ◽  
Internal Audit Function ◽  
External Auditor

ABSTRACT Due to rapidly changing risks in companies, a continuous alignment of internal audit activities with the relevant risks is required. Continuous auditing (CA) is one possible way to meet these requirements. Specifically, the internal audit function (IAF) could use CA as a methodology in order to add a continuous perspective to their risk assessment. This study examines factors associated with the use of CA information in the IAF's risk-based audit planning (RBAP). We use survey data from 264 chief audit executives to address our research question. We find several factors having a positive influence on the use of information from CA in RBAP. These factors include the importance of data analytics, the collaboration with the audit committee and external auditor, as well as the use of IAF's results for fraud prevention. Furthermore, our additional analysis presents various positive effects of CA on potential output measures of internal auditing. JEL Classifications: G30; G32; G34; M42.

scholarly journals The Effect of Corporate Governance in Palestine on the Efficiency of Internal Audit: Empirical Evidence

2016 ◽  
Vol 8 (5) ◽  
pp. 124 ◽  
Author(s):  
Suhaib Tawfiq Jarrar
Keyword(s):  
Corporate Governance ◽  
Internal Control ◽  
Audit Committee ◽  
Audit Quality ◽  
Internal Audit ◽  
Public Companies ◽  
Internal Auditor ◽  
The Right ◽  
The Impact

This paper comes to examine the impact of corporate governance in Palestine on the efficiency of internal audit from the reality of the listed corporations in the Palestine Exchange; [PEX]. The population of this paper consists of all the 25 listed Palestinian companies in the Palestine Exchange that have internal auditor. It also includes another 5 companies that rely on the internal audit by external companies. Hence, the number of the reviewed companies by this study is 30 companies (Palestine Exchange Market). Thereupon, 30 questionaires were distributed and retrived. However, this manuscript states a summary of the most important results. These results are explained as is shown in the following: (1) the findings of the study state that there is an effect of applying the variables of corporate governance altogether on the quality of the internal audit of the listed public companies in the Palestine Exchange. These rules are (disclosure and transparency, accountability, responsibility, justice, and independency). (2) The results of the study indicate that there is a significant effect of applying the corporate governance variables individually on the quality of the internal audit of the listed public companies in the Palestine Exchange. Thus, the effect of these variables appears contrasted respectively as the following: disclosure and transparency, justice and accountability, independency and responsibility. (3) The corporate governance represents combining the right practices and procedures which operate within the standards and rules that governed by the obligatory standards. These standards aim at ensuring that there aren’t any contradictions between the strategic goals of the company and the fuctional procedures of the administration in achieving these goals. (4) The internal audit adds value to the company through the functions that enhance its performance within corporate governance. This includes providing information to all levels of the management, evaluating the system of the internal control and the risk management, in addition to sticking the company with the principles of corporate governance. The findings of the study come up with the following recommendations: (1) the study assures the importance of applying the corporate governance principles because of their clear effect on the internal audit quality. It also recommends working efficiently on the professional development of the auditors and improving their performance through training programs, as well, encouraging them to keep up with the latest developments in the field of the auditing and other related fields. (2) It strongly recommends working on enhancing and activating the role of the board of directors and the audit committee; as well as granting them the independency. Hence, they will be able to carry out the tasks assigned to them. Consequently, they will avoid the effects that the company may be exposed to as a result of the internal weakness of the practical aspects of the principles of corporate governance; in addition to the negative impacts of this issue on the quality of the internal audit.

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