Adoption of Sarbanes-Oxley Measures by Nonprofit Organizations: An Empirical Study

Venkataraman M. Iyer; Ann L. Watkins

doi:10.2308/acch.2008.22.3.255

Adoption of Sarbanes-Oxley Measures by Nonprofit Organizations: An Empirical Study

Accounting Horizons ◽

10.2308/acch.2008.22.3.255 ◽

2008 ◽

Vol 22 (3) ◽

pp. 255-277 ◽

Cited By ~ 27

Author(s):

Venkataraman M. Iyer ◽

Ann L. Watkins

Keyword(s):

Nonprofit Organizations ◽

Audit Committee ◽

Code Of Conduct ◽

Internal Audit ◽

Internal Controls ◽

Financial Reports ◽

Internal Auditors ◽

Accountability Measures ◽

Sarbanes Oxley ◽

The Board Of Directors

SYNOPSIS: This paper reports the results of a survey of 215 nonprofit organizations to determine the degree to which these organizations have voluntarily adopted provisions of the Sarbanes-Oxley Act of 2002 (SOX). The authors believe that this research is timely and important as several states are considering implementing regulation that would have implications for stricter accountability measures for nonprofit organizations. Results indicate that many of the nonprofits in this survey have either already adopted governance measures similar to those prescribed by SOX or are in the process of doing so. The regression results indicate that size of budget, size of the board of directors, and proportion of independent members on the board are significantly related to the presence of an audit committee. Organizations engaging external or internal auditors are more likely to have a code of conduct and have periodic assessments of internal controls. The presence of an internal audit function is also significantly related to management certification of financial reports. The regression analysis on a composite SOX measure (which was calculated by summing the responses to questions on adoption of an audit committee, code of conduct, whistleblower protection, management certification of financial reports, and periodic assessments of internal controls) indicates that the presence of an external and/or an internal audit is significantly related to the adoption of such SOX measures.

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The Composition of Nonprofit Audit Committees

Accounting Horizons ◽

10.2308/acch.2006.20.1.75 ◽

2006 ◽

Vol 20 (1) ◽

pp. 75-90 ◽

Cited By ~ 44

Author(s):

Thomas E. Vermeer ◽

K. Raghunandan ◽

Dana A. Forgione

Keyword(s):

Nonprofit Organizations ◽

Audit Committee ◽

Nonprofit Sector ◽

Internal Audit ◽

Audit Committees ◽

Chief Financial Officers ◽

Independent Directors ◽

Government Grants ◽

Sarbanes Oxley ◽

Financial Expert

Audit committee composition has attracted significant attention from legislators and regulators in recent years. Although most of the focus has been on corporate audit committees, recent legislative efforts underscore the importance of governance in the nonprofit sector. Using data from a survey of 118 chief financial officers of nonprofit organizations as well as financial data from the GuideStar database, we examine the composition of nonprofit audit committees and factors associated with their composition. The data show that many nonprofits have not adopted Sarbanes-Oxley reforms, since we find that 36 percent of nonprofits have audit committees that are not completely independent. Organizations that are larger, receive government grants, and use a Big 4 auditor are more likely to have audit committees with solely independent directors. Surprisingly, universities and hospitals are less likely to have solely independent directors on the audit committee. Eighty-eight percent of nonprofits have at least one financial expert on the audit committee, and organizations that receive government grants and have an internal audit function are more likely to have a financial expert on the committee. Overall, our findings support the view that nonprofit audit committee composition varies in response to the demands related to the need for resources, the presence of other monitoring mechanisms, and the type of nonprofit.

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Guidance For The Audit Committee: Acquiring Professional Services

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v20i3.2216 ◽

2011 ◽

Vol 20 (3) ◽

Author(s):

Janet L. Colbert

Keyword(s):

Audit Committee ◽

Service Providers ◽

Internal Audit ◽

Professional Services ◽

Audit Committees ◽

Professional Service ◽

Font Size ◽

External Audit ◽

Sarbanes Oxley ◽

The Board Of Directors

Outside firms are often called upon to provide an entity with professional services.  Such services might include external audit, systems, accounting, appraisal and valuation, actuarial, consulting, tax, or agreed-upon procedures work.  The audit committee of the Board of Directors is typically the party within the entity responsible for hiring and overseeing these outside professional service providers.   The Sarbanes-Oxley Act of 2002 mandates that certain professional services, which may have previously been performed by the firm engaged to do the external audit, cannot be performed by that public accounting firm.  Thus, audit committees may be forced to contract with other professionals for services previously provided by the external auditors.  The task of locating, contracting with, and overseeing the work of qualified firms for these professional services may seem daunting to the audit committee.   This article presents steps the audit committee should take in selecting a professional service provider and overseeing that firm’s work.  Also given are ways in which the entity’s internal audit activity can provide significant assistance to the audit committee undertaking its tasks.

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An Examination Of Underreporting Of Time And Premature Signoffs By Internal Auditors

Review of Business Information Systems (RBIS) ◽

10.19030/rbis.v14i4.359 ◽

2010 ◽

Vol 14 (4) ◽

Author(s):

Qianhua (Q) Ling ◽

Michael D. Akers

Keyword(s):

Internal Audit ◽

Internal Controls ◽

Professional Skepticism ◽

Internal Auditors ◽

External Auditors ◽

Considerable Research ◽

Internal Audit Function ◽

Sarbanes Oxley ◽

Audit Team ◽

The Impact

The passage of the Sarbanes-Oxley Act of 2002 (SOX) heightened the importance of internal controls and accordingly, a key control - the internal audit function. Consequently, management and external auditors have both increased their reliance on internal auditors’ work. While there has been considerable research regarding the impact of the underreporting of time and premature sign-offs on the external audit, there has only been one study that has examined the impact of these two items on the internal auditors’ work. Such research is dated (1994) and prior to the passage of SOX. We surveyed members of the Institute of Internal Auditors (IIA) in the Midwest to examine their behavior and perceptions regarding these two items. The respondents in our study believe the underreporting of time is unethical and is supported by their reporting of all time worked, even if such time exceeded the budget. Our findings also show that the respondents feel premature sign-offs are unethical and result primarily from lack of professional skepticism and inadequate training. Increasing training in audit areas and improving communications within the audit team are possible solutions to reduce premature sign-offs. Premature sign-offs are more likely to occur in operational audits and to a lesser degree in financial audits and compliance audits.

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Criteria for evaluating the effectiveness of the internal audit of an economic entity

LAPLAGE EM REVISTA ◽

10.24115/s2446-6220202173b1581p.504-510 ◽

2021 ◽

Vol 7 (3B) ◽

pp. 504-510

Author(s):

Yulia Nikolaevna Kovalenko ◽

Svetlana Nikolaevna Kovalenko ◽

Natalia Alekseevna Prodanova ◽

Marina Mikhailovna Krekova ◽

Vadim Anatolevich Mironchuk ◽

...

Keyword(s):

Audit Committee ◽

Internal Audit ◽

Control Measures ◽

Executive Management ◽

Internal Auditor ◽

Internal Auditors ◽

External Auditors ◽

Audit System ◽

Economic Entity ◽

The Board Of Directors

The article raises issues related to the need and possibility of evaluating the effectiveness of the internal audit system. The directions of internal auditors 'audits are formed, the procedure of actions of various structural divisions within the framework of effective corporate governance is described, the key factors of the effectiveness of internal auditors' work are given, their essence is revealed. The necessity of creating an internal audit committee is justified, and the provisions of the internal audit committee are prescribed, according to its supervisory role in the activities of an economic entity. The role of the internal auditor and its interaction with external auditors who carry out control measures are described, arguments are given about internal cooperation between the board of directors, the internal audit committee and the executive management of an economic entity in relation to the control system.

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Serving Two Masters: The Association between Audit Committee Internal Audit Oversight and Internal Audit Activities

Accounting Horizons ◽

10.2308/acch.2010.24.1.1 ◽

2010 ◽

Vol 24 (1) ◽

pp. 1-24 ◽

Cited By ~ 99

Author(s):

Lawrence J. Abbott ◽

Susan Parker ◽

Gary F. Peters

Keyword(s):

Audit Committee ◽

Internal Audit ◽

Positive Association ◽

Internal Controls ◽

Fiscal Year ◽

Composite Measure ◽

Internal Auditors ◽

Internal Audit Function ◽

Fortune 1000 ◽

Budgetary Control

SYNOPSIS: In this paper, we investigate the association between the audit committee’s oversight of the internal audit function (IAF) and the nature of IAF activities. The importance of internal controls and of the roles of both the audit committee and the internal audit function in monitoring control activities have grown in recent years. Despite the importance of these topics, relatively little regulatory or best practices guidance addresses the distribution of IAF activities and amount of audit committee involvement with the IAF. We hypothesize that when the balance of oversight over the IAF lies with the audit committee (vis-a`-vis management), the committee will steer the IAF toward a more internal-controls-oriented focus. Our hypothesis is based on the existing practice guidance in this area and the relative incentives of management and the audit committee. To test our hypothesis, we survey 134 chief internal auditors from Fortune 1000 firms regarding the amount of internal audit resources allocated across internal audit activities in fiscal year 2005. We then construct a composite measure of audit committee oversight contingent on the relative control that the audit committee has over IAF vis-a`-vis management. Our composite measure is derived from three key facets of the audit committee/internal audit relationship: reporting duties, termination rights, and budgetary control. Consistent with our hypothesis, we document a strong, positive association between our audit committee oversight variable and the amount of IAF budget allocated to internal-controls-based activities.

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Effects of reporting relationship and type of internal control deficiency on internal auditors’ internal control evaluations

Managerial Auditing Journal ◽

10.1108/maj-07-2017-1606 ◽

2018 ◽

Vol 33 (3) ◽

pp. 318-335 ◽

Cited By ~ 3

Author(s):

Audrey Gramling ◽

Arnold Schneider

Keyword(s):

Internal Control ◽

Audit Committee ◽

Internal Audit ◽

Internal Controls ◽

Material Weakness ◽

Content Type ◽

Internal Auditors ◽

Tone At The Top ◽

Internal Audit Function ◽

Professional Guidance

Purpose This paper aims to explore whether an internal auditor’s evaluation of internal control deficiencies are influenced by the party with primary influence over the internal audit function and by the type of internal control deficiency. Design/methodology/approach A behavioral experiment is conducted with internal auditors as participants in a 2 × 2 between-subjects factorial design. Findings Results indicate that internal auditors are less likely to evaluate a pervasive control deficiency related to “tone at the top” as a material weakness than a process-specific control deficiency. Furthermore, internal auditors are somewhat less likely to evaluate a process-specific internal control deficiency as a material weakness when management has primary influence over the internal audit function than when the audit committee has primary influence. It is also found that the best practice of internal audit oversight (i.e., primary oversight of internal auditors by the audit committee) may lead to potential internal under-reporting of instances where the audit committee represents a material weakness in internal control. Research limitations/implications Limitations of this research include lack of economic consequences (e.g. future pay and job loss) associated with the internal control decisions made by the participants; less concise information provided to the participants than would generally be available to them; and lack of generalizability of the findings beyond the specific company setting and internal control scenario portrayed in the case materials. Practical implications Not evaluating a pervasive control deficiency related to “tone at the top” as a material weakness seems to not fully align with relevant professional guidance and can possibly result in inaccurate internal information about the quality of internal controls. Furthermore, having an internal auditor’s evaluation of a process-specific internal control deficiency influenced by the party with primary influence over the internal audit function would not appear to align with relevant professional guidance. Finally, primary oversight by the audit committee of the internal auditors may lead to potential internal under-reporting of instances where the audit committee represents a material weakness in internal controls and, thus, possible communication of inaccurate internal control information. Originality/value This study is the first to address whether the party with primary influence over the internal audit function influences an internal auditor’s evaluation of internal control deficiencies.

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Determinants Affecting Internal Audit Effectiveness

EMAJ Emerging Markets Journal ◽

10.5195/emaj.2020.208 ◽

2021 ◽

Vol 10 (2) ◽

pp. 10-17

Author(s):

Prem Lal Joshi

Keyword(s):

Big Data ◽

Audit Committee ◽

Internal Audit ◽

Future Research ◽

Internal Auditor ◽

Internal Auditors ◽

Listed Firms ◽

Core Skills ◽

The Board Of Directors ◽

Audit Effectiveness

This study tries to identify the determinants that affect the effectiveness of internal auditing for listed firms in India. A sample of 300 listed companies was drawn. Questionnaires were mailed to the head of audit department, internal audit managers, internal auditor and head of accounts of each company. The overall response rate was 28.3%. The results were derived by applying multiple regression method and the three determinants turned out to be significant. The three determinants are risk-based planning, usage of Big Data and Analytics, and frequency of meetings of internal auditor (IA) with audit committee (AC) respectively. The model explains 42.8% of variations in the dependent variable (IA effectiveness). The study indeed encourages internal auditors to develop their core skills and competencies in the area of risk assessment and Big Data and Analytics for delivering better services to the auditees, the board of directors and the AC members. The implications of these findings may be of importance to internal audit professionals, accounting professional bodies and the regulators. Direction for future research is also provided.

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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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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

المجلة العربية للعلوم ونشر الأبحاث مجلة العلوم الاقتصادية والإدارية والقانونية ◽

10.26389/ajsrp.l210520 ◽

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.

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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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