Characteristics of statutory internal auditors and operating efficiency

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to examine the effect of the characteristics of statutory internal auditors on operating efficiency. Design/methodology/approach -This study investigates three characteristics pertaining to statutory internal auditors, namely, compensation, activity and expertise, based on 1,340 firm observations from 2009 to 2010 using publicly available disclosure data for Korean listed firms. Findings -The authors find no evidence that statutory internal auditors' compensation is positively associated with operating efficiency. This implies that compensation data on statutory internal auditors in Korea may not directly reflect their competence and ability to enhance operating efficiency. On the other hand, the authors find evidence for a positive association between full-time status for statutory internal auditors and operating efficiency and a positive association between the attendance at board meetings for statutory internal auditors and operating efficiency. The results also show a decrease in operating efficiency when statutory internal auditors are newly appointed. Finally, expertise of statutory internal auditors in financial or legal matters provides no advantage in terms of operating efficiency. Practical implications -This study contributes to the extant literature on internal audit by examining the advisory role of statutory internal auditors and its effect on operating efficiency, which is one of the objectives established by the Committee of Sponsoring Organizations of the Treadway Commission. Originality/value -While most prior research on internal audit depends on survey data from statutory internal auditors or experimental data based on a limited sample of firms, this study is based on a large sample of publicly available data of the Korean market.

Can internal audit functions improve firm operational efficiency? Evidence from China

“…In addition, IAF can assist external auditors in evaluating financial report quality, leading to lower external audit fees (Felix et al, 2001) and higher audit efficiency (Dezoort et al, 2001;Messier et al, 2011;Lee and Park, 2016). In a study closely related to ours, Cho et al (2015) find no evidence that statutory internal auditors' compensation and expertise are positively associated with firm operational efficiency. However, Jiang et al (2019) show, using global data, that IAF operations related services play a role in improving firm operational efficiency [1].Our study extends prior studies by examining the influence of IAF on firm operational efficiency in China, the world's largest emerging economy.…”

“…Another limitation, which is common in this type of study, is that our findings may not be generalizable from China to other countries with different institutions. Despite these limitations, our study complements Cho et al (2015) and Jiang et al (2019) by using Chinese data to demonstrate the important role played by IAF in increasing firm operational efficiency. Our study also extends theirs by showing that IAF competence plays a more important role in improving operational efficiency than IAF independence.…”

“…In contrast to prior studies (Cho et al, 2015;Jiang et al, 2019), we examine the effects of the two key aspects of IAF quality on firm operational efficiency. Auditing standards and empirical studies show that competence and independence are important elements of the quality of IAF (AICPA, 1991;IIA, 2016) and that both factors influence financial reporting quality (Abbott et al, 2016).…”

“…The prior IAF literature focuses primarily on the contribution of IAF to the financial reporting (Prawitt et al, 2009;Norman et al, 2010;Lin et al, 2011;Christ et al, 2015;Ege, 2015;Abbott et al, 2016), paying less attention to the role of IAF in improving firm operational efficiency. The two most notable exceptions are Cho et al (2015) and Jiang et al (2019). However, we examine the influence of overall IAF quality on operational efficiency, whereas Jiang et al (2019) focus on IAF's operations-related services and Cho et al (2015) focus on the compensation and expertise of statutory internal auditors.…”

“…The two most notable exceptions are Cho et al (2015) and Jiang et al (2019). However, we examine the influence of overall IAF quality on operational efficiency, whereas Jiang et al (2019) focus on IAF's operations-related services and Cho et al (2015) focus on the compensation and expertise of statutory internal auditors. Our study complements and extends theirs by using Chinese data to show how IAF improves firm operational efficiency.…”