A synthesis of empirical internal audit effectiveness literature pointing to new research opportunities

Abstract

Purpose – The purpose of this paper is to provide a synopsis of what academic literature says about internal audit (IA) effectiveness ten years after Bailey et al. (2003) presented research opportunities in IA. A new set of research questions that may help to bring the best out of IA is proposed. Design/methodology/approach – Empirical studies based on internal auditors’ self-assessments (“inside-out”) and empirical studies based on other stakeholders’ perspectives (“outside-in”) are reviewed through an “effectiveness lens”. The “outside-in” perspective is regarded as particularly valuable. Findings – First, common themes in the empirical literature are identified. Second, the main threads into a model comprising macro and micro factors that influence IA effectiveness are synthesized. Third, promising future research paths that may enhance IA's value proposition were derived. Practical implications – The “outside-in” perspective indicates a disposition to stakeholders’ disappointment in IA: IA is either running a risk of marginalization (IIA, 2013; PWC, 2013) or has to embrace the challenge to emerge as a recognized and stronger profession. The suggested research agenda identifies empirical research threads that can help IA practitioners to make a difference for their organization, be recognized, respected and trusted and help the IA profession in its pursuit of creating a unique identity. This paper wishes to motivate researchers to explore innovative research strategies and probe new theories, as well as benefit from cross-fertilization with other research streams. Originality/value – This paper summarizes the state of research on IA effectiveness and proposes a guide for future IA research. It provides pointed questions that may further advance the understanding of what constitutes IA and how IA can enhance its value proposition.

The effects of tone at the top and coordination with external auditors on internal auditors’ fraud risk assessments

“…Third, our study addresses calls to better understand the benefits of coordination between internal and external auditors from the internal auditors' perspective (e.g. Gramling et al, 2004;Lenz and Hahn, 2015). Our findings complement prior research by providing evidence that the coordination between the two audit groups helps internal auditors improve their assurance-related assessments.…”

Convergence towards internal audit effectiveness in the BRICS Countries

“…The framework to assess convergence is drawn on neo-institutional theory. Owing to the unavailability on publicly disclosed data on IA (Al-Najjar, 2011), the complexities of analysing the linkage between corporate governance measures and the degree of IA effectiveness (Regoliosi & d'Eri, 2014) and doubt expressed over the possibility of generalising the relationship between IA and corporate governance measures (Carcello, Hermanson & Raghunandan, 2005), this study departs from previous research by attempting to "abandon old trails and try new ways", as suggested by Lenz and Hahn (2015). It uses the responses of participants from the BRICS countries on the 2010 global Common Body of Knowledge (CBOK) survey of the Institute of Internal Auditors (IIA) (IIARF, 2010) in conjunction with the elements of the Internal Audit Capability Model (IA-CM).…”

“…In one of the latest studies, Lenz and Hahn (2015) performed a synthesis of empirical IA effectiveness literature and suggested that IA effectiveness should be viewed as a multifaceted concept which distinguishes between macro and micro dimensions. They identified micro dimensions as the organisation, IA resources, IA processes and IA relationships.…”

“…One way of doing this is to demonstrate IA effectiveness (Lenz & Hahn, 2015). An effective internal audit function (IAF) as a corporate governance monitoring mechanism could be especially useful in developing countries as the literature shows the importance of corporate governance at firm level for these countries to access financing, lower the cost of capital and improve operational firm performance (Claessens & Yurtoglu, 2013;2012;Peters, Miller & Kusyk, 2011).…”

Coping with Complexity: Internal Audit and Complex Governance

“…The existence and proliferation of auditing shows that traditional central control in government is still possible. Whether auditing is particularly successful or unsuccessful is beyond the scope of the present research (but see Lenz & Hahn, 2015;Nuijten et al, 2015). Presumably the same holds for auditors as would hold for the members of most other professions-some are very good, others are not.…”