Factors that Influence the Internal Audit Function's Maturity

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.

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

2014 ◽  
Vol 29 (1) ◽  
pp. 115-140 ◽  
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.

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

2011 ◽  
Vol 86 (6) ◽  
pp. 2131-2154 ◽  
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.

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

2018 ◽  
Vol 32 (2) ◽  
pp. 121-140 ◽  
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.

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

2016 ◽  
Vol 35 (4) ◽  
pp. 159-173 ◽  
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.

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

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.

Fraud Reporting within an Organization and the Use of the Internal Audit Function as a Training Ground for Management

2021 ◽  
Author(s):  
Alisa G. Brink ◽  
C. Kevin Eller ◽  
Karen Y. Green
Keyword(s):  
Internal Audit ◽  
Management Training ◽  
Third Party ◽  
Internal Auditors ◽  
Internal Audit Function ◽  
Management Accountants ◽  
Reporting Behaviors ◽  
Reporting Decisions ◽  
Willingness To Report ◽  
Sense Of Urgency

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.

Internal Auditing in India and China: Some Empirical Evidence and Issues for Research

2018 ◽  
Vol 34 (4) ◽  
pp. 511-523 ◽  
Author(s):  
R. Narayanaswamy ◽  
K. Raghunandan ◽  
Dasaratha V. Rama
Keyword(s):  
Empirical Evidence ◽  
Emerging Economies ◽  
Internal Audit ◽  
The United States ◽  
Future Research ◽  
Internal Auditing ◽  
Internal Auditors ◽  
Internal Audit Function ◽  
India And China

Internal auditing is an important element in the corporate governance framework. Yet, research related to internal auditing, particularly in emerging economies like India and China, is sparse. We use data from responses provided by chief audit executives to provide empirical evidence about the extent of support for internal auditing and the determinants of such support in India and China, and compare the data with those from the United States. We find that such support is negatively related to pressure on internal auditors to suppress or alter their findings. We also provide descriptive evidence about the work and staffing of the internal audit function. We discuss the role of internal auditing in India and identify some possible avenues for future research.

Does the chief audit executive gender matter to internal audit effectiveness? Evidence from Tunisia

2019 ◽  
Vol 10 (4) ◽  
pp. 424-439
Author(s):  
Ahmed Atef Oussii ◽  
Mohamed Faker Klibi
Keyword(s):  
Quality Assurance ◽  
Internal Audit ◽  
Internal Auditing ◽  
Content Type ◽  
Internal Auditors ◽  
Positive Effects ◽  
Internal Audit Function ◽  
Management Positions ◽  
African Perspective ◽  
Executive Gender

Purpose The purpose of this paper is to investigate whether chief audit executive (CAE) gender has a significant impact on the internal audit function (IAF) effectiveness as proxied by the extent to which the internal audit function uses quality assurance techniques. Design/methodology/approach This study uses a multivariate regression model to analyze the association between CAE gender and the use of quality assurance techniques in fieldwork as a proxy for IAF effectiveness. Data were collected using a survey of 74 internal auditors from Tunisian listed companies. Findings The results indicate that IAFs run by a female CAE are more likely to incorporate quality assurance techniques into fieldwork than IAFs run by male CAEs. Therefore, internal audit departments managed by women tend to be more effective. Practical implications Findings highlight to regulators and reform advocates the importance of having women on the CAE position will improve internal audit practices’ quality. Thus, the gender difference in internal auditing should be more strongly emphasized in different cultural and economic contexts. Originality/value This study provides new insights which add to the existing gender literature by introducing a North African perspective and simultaneously providing new insights that highlight the importance of having women on top management positions in internal auditing and the positive effects which come with it.

Attracting Applicants for In-House and Outsourced Internal Audit Positions: Views from External Auditors

2015 ◽  
Vol 30 (1) ◽  
pp. 143-156 ◽  
Author(s):  
Geoffrey D. Bartlett ◽  
Joleen Kremin ◽  
K. Kelli Saunders ◽  
David A. Wood
Keyword(s):  
Critical Role ◽  
Internal Audit ◽  
Job Applicants ◽  
Internal Auditing ◽  
Internal Auditors ◽  
External Auditors ◽  
Internal Audit Function ◽  
Career Option ◽  
Negative Perceptions ◽  
Survey Results

SYNOPSIS While the internal audit function (IAF) plays a critical role in organizations, it faces challenges in finding sufficient numbers of high-quality job applicants to fill its ranks. The results of two experiments suggest that practicing external auditors are twice as likely to apply for positions that are labeled as accounting positions rather than either in-house or outsourced internal audit positions. The results also suggest that external auditors have negative perceptions of the profession and work environment of internal auditors—especially in-house internal auditors relative to outsourced internal auditors—and are more likely to recommend that mediocre rather than top students apply to work in internal auditing. We also provide survey results from experienced external auditors about aspects of internal auditing that may be improved to make it a more attractive career option. Taken together, the results suggest internal auditing faces significant hiring challenges, but also offer ways to mitigate these challenges.

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