SUMMARY: A company’s internal audit (IA) function can be maintained in-house, outsourced to an IA service provider, or cosourced (a combination of the in-house and outsourced IA functions). This study explores the effect of these sourcing arrangements on the external auditor’s assessed quality and reliance on the IA function. We predict that external auditors consider the cosourced and outsourced IA functions to be equal in terms of assessed quality and reliance. Furthermore, we predict that the external auditors’ assessments of objectivity and competence will be greater for cosourced and outsourced IA functions compared to in-house IA functions; therefore, external auditors will have greater reliance on the cosourced and outsourced IA functions. Finally, we predict that when the IA service provider also provides additional tax services to the client, external auditor reliance is significantly decreased compared to when the service provider does not provide tax services. One hundred and eight CPAs participated in this study and were randomly assigned to one of five treatment conditions: in-house, cosource, outsource, cosource with tax services, and outsource with tax services. The results support our predictions and indicate that external auditors place more reliance on cosourced and outsourced IA functions compared to in-house IA functions. Furthermore, external auditors’ reliance on cosourced and outsourced IA functions decreases when tax services are also provided by the IA service provider.
Prior research indicates that external auditors are willing to rely to a greater extent on the work of the internal audit (IA) function when the function has been outsourced, or co-sourced, as opposed to maintained in-house. This article addresses the extent to which this relationship between IA sourcing and external auditor reliance is moderated by the use of continuous auditing. One hundred forty-two auditors, all CPAs, participated in an experiment in which we manipulated both IA sourcing type (in-house versus outsourced) and audit type (periodic versus continuous) and measured ratings of external auditor reliance on the IA function. Results indicate that when the IA function uses periodic auditing, external auditors rely more on an outsourced function than an in-house function. However, when the IA function uses continuous auditing, external auditors do not differ in reliance on an outsourced or in-house function. The prior literature suggests that outsourcing an IA function can lead to higher levels of external auditor reliance and subsequently lower external audit costs. The results here suggest that maintaining the IA function in-house and employing continuous auditing may lead to similar external audit effects.
Most database textbooks on conceptual modeling do not cover domainspecific patterns. The texts emphasize notation, apparently assuming that notation enables individuals to correctly model domain-specific knowledge acquired from experience. However, the domain knowledge acquired may not aid in the construction of conceptual models if it is not structured to support conceptual modeling. This study uses the Resources Events Agents (REA) pattern as an example of a domain-specific pattern that can be encoded as a knowledge structure for conceptual modeling of accounting information systems (AIS), and tests its effects on the accuracy of conceptual modeling in a familiar business setting. Fifty-three undergraduate and forty-six graduate students completed recall tasks designed to measure REA knowledge structure. The accuracy of participants' conceptual models was positively related to REA knowledge structure. Results suggest it is insufficient to know only conceptual modeling notation because structured knowledge of domain-specific patterns reduces design errors.
Discusses an organisation’s responsibilities to mitigate the opportunity for identity theft, which is the criminal act of assuming the identity of another person with the expectation of gain; it is becoming the most pervasive financial crime today and resulted in the estimated loss of $221 billion worldwide in 2003. Indicates the methods used to steal identities and some of the US laws applicable to identity theft. Goes on to the increasing tendency among victims of identity theft to seek redress from third parties, including employers and other record keepers, for failing to protect their personal information. Makes recommendations for organisations to reduce the risks involved: enhance manual controls by destroying outdated records and restricting files to authorised employees, establish employee controls, enhance computer system controls, and consider insurance as a risk management tool.
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