Exploring the Effect of Corporate Governance on the Audit Effort: The Case of Greek Port Authorities

Abstract

Purpose:The goal of this paper is to investigate the impact of corporate governance on the implementation of internal audits (ΙΑ) in the Greek public sector. Internal audit services have been adopted as a major strategy by the management of public organizations over the last decade in order to achieve their objectives in an efficient and effective manner. Under this framework, the present research investigates how the Board of Directors' williness, support, and implementation of IA, improve public governance. Design/methodology/approach: Data for the study were gathered from the annual financial reports of 13 Port Authorities which have the legal status of Societies Anonymes, between 2012 and 2020. In the regression analysis, audit effort (audit team size) was chosen as dependent variable and as independent variables, the Board of Directors' size, the BIG 5 audit firms and the implementation of internal audit function.To estimate internal audit economic models, various quantitative approaches such as ordinary least squares, weights least squares, fixed effect, and random effect were used. Findings: According to our findings, IA plays a crucial role in the corporate governance system by providing a systematic disciplined approach to monitoring public organizations' policies and procedures and influencing their value. Organizations that completely outsource their IA have been influenced positively in terms of good governance. The high quality of outsourcing IA, has an impact on external auditors' audit services, since external auditors adjust their strategy based on IA reports. Practical Implications: In case of Port Authorities, audit's quality in both internal and external services affects their economic growth and investors' attraction, since it enhances the transparency and accountability of financial reports. Originality/value: In Greece, internal audit was implemented in the public sector, for the first time, in 2005, but it became mandatory in 2019 (Law 4622/2019). Few organizations apply IAF until today, so there are few available information and data of IA' effects on public governance and vice versa. Few researchers focus their studies on IA in public sector.