Factors Associated with U.S. Public Companies' Investment in Internal Auditing

Carcello, Joseph V.; Hermanson, Dana R.; Raghunandan, K.

doi:10.2308/acch.2005.19.2.69

Cited by 207 publications

(269 citation statements)

References 13 publications

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“…However, information asymmetry problems between executive and independent directors suggest that internal audit is more likely to be a complementary mechanism. This is supported by research evidence examining the relationship between internal audit and audit committees (Carcello et al, 2005;Goodwin, 2003;Raghunandan et al, 2001;Scarbrough et al, 1998) and is also consistent with the IIA view that internal auditing helps an organization to evaluate and improve other governance processes (IIA, 1999(IIA, , 2004. Hence, we expect a positive association between the use of internal audit and both an independent board chair and the proportion of independent directors on the board.…”

Section: Internal Audit As a Control Mechanismmentioning

confidence: 56%

“…All of these studies use agency theory to explain the use of internal audit as a monitoring mechanism to reduce agency costs (Adams, 1994). Carcello et al (2005) is, to our knowledge, the only other study to explore the factors associated with public companies' investment in internal audit. Based on a sample of 224 mid-size US public companies, they find that internal audit budgets are positively associated with firm size, operating cash flows and more involved audit committees.…”

Section: Introductionmentioning

confidence: 99%

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The use of internal audit by Australian companies

Goodwin-Stewart

Kent

2006

Managerial Auditing Journal

169

205

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Purpose -The purpose of this study is to explore the voluntary use of internal audit by Australian publicly listed companies and to identify factors that lead listed companies to have an internal audit function. Design/methodology/approach -Drawing on the Institute of Internal Auditors' definition of internal auditing, the paper predicts that internal audit use is associated with factors related to risk management, strong internal controls and strong corporate governance. To test the predictions, the study combines data from a survey of listed companies with information from corporate annual reports. The paper also provides descriptive information on the use of internal audit. Findings -The results indicate that only one-third of the sample companies use internal audit. While size appears to be the dominant driver, there is also a strong association between internal audit and the level of commitment to risk management. However, the study finds only weak support for an association between the use of internal audit and strong corporate governance. Research limitations/implications -A limitation of our study is that some of the variables in the model may not be good proxies for the factors being measured. Refinement of the model and the variables used provides an opportunity for future research. Practical implications -The limited use of internal audit by Australian companies has important implications for sound corporate governance. Originality/value -This is the first study that identifies factors associated with the use of internal audit by Australian listed companies.

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Section: Internal Audit As a Control Mechanismmentioning

confidence: 56%

Section: Introductionmentioning

confidence: 99%

The use of internal audit by Australian companies

Goodwin-Stewart

Kent

2006

Managerial Auditing Journal

169

205

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“…The IIA (2009) guidance requires the internal auditor to provide ERM consulting related value-added services to management in addition to assurance on controls. Moreover, since the passage of SOX, audit committees and other governance participants have placed greater reliance on internal auditors (Carcello, Hermanson, & Raghunandan, 2005). While the internal auditor involvement in ERM can add value to the organization, the expansion of its role to provide consulting services may conflict with its value as an assuror and independent analyst of the effectiveness of the risk management processes.…”

Section: The Internal Auditor's Dual Role and The Impact On Its Indepmentioning

confidence: 99%

A Conceptual Framework of Potential Conflicts with the Role of the Internal Auditor in Enterprise Risk Management

Thompson

2013

AFR

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Internal auditors are expected to be increasingly involved in Enterprise Risk Management (ERM) by adding value to the organization and providing assurance that the entity's risk exposures are properly understood and managed. The Institute of Internal Auditors' (IIA, 2009) revised position paper defines the internal auditor's role in ERM as measuring and monitoring performance, and at the same time evaluating the effectiveness of management's risk monitoring process. In this paper, the author proposes a conceptual framework to assess whether potential conflicts exist with the role of the internal auditor in companies with fully implemented ERM frameworks. The existence of conflicts would depend on whether the internal auditor's independence and objectivity is impaired. The proposed conceptual framework suggests that the internal auditor's independence and objectivity would not be impaired when it leads and maintains the ERM framework. In addition, the internal auditor's independence and objectivity would not be impaired when it spends more time performing ERM consulting activities versus providing assurance on controls. Finally, the proposed conceptual framework suggests that the internal auditor's independence and objectivity would not be impaired when it reports to a separate board risk management committee. From the review of prior literature on the internal auditor's role in ERM, hypotheses are developed to suggest a relationship between the internal auditor's independence and objectivity with performing a leading and maintaining role in ERM, providing assurance on controls and consulting services, and reporting to a separate risk management committee that can be empirically tested in future research.

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“…The concept of AC effectiveness has been benchmarked in prior corporate governance studies against the AC's own structure and members' governance characteristics. These good governance characteristics of the AC and its members include independence, financial and industry expertise, frequency of meetings, size of the committee, and the existence of an AC charter (Kalbers & Fogarty, 1993;Goodwin & Yeo, 2001;DeZoort et al, 2002;Carcello et al, 2002;Carcello et al, 2005;Lary & Taylor, 2012). The inference is that the effectiveness of an AC in fulfilling its combined monitoring, advisory and independence roles will be reflected in the strength of its own good governance characteristics.…”

Section: Introductionmentioning

confidence: 99%

Resourcing the Internal Audit Function: How Effective is the Audit Committee?

Taylor²

2017

AJFA

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The aim of this study is to investigate the extent to which an Audit Committee (AC)'s own governance characteristics impact on its role effectiveness in achieving enhanced resourcing and by extension, improved the scope and quality of the Internal Audit Function (IAF). Sample is drawn from top 300 companies listed on the Australian Stock Exchange (ASX). This study combines data from a questionnaire administered to the Internal Audit Executive (IAE) with information from annual reports and financial databases. Hypotheses are developed and tested using multiple regression analysis. This analysis is supplemented by insights from a comparative case study for two companies in the sample. Results reveal that AC size is significantly positively related to the financial resources (budget) allocated to IAF, while both AC financial expertise and AC size are significantly positively related to IAF labour hours. Results also confirm that IAF's with higher resourcing are able to concentrate those resources on areas expected of a high quality IAF. Further, comparative case study analysis gives insights to the superior ways a larger size AC can be effective in fulfilling its oversight role, building its working relationships and obtaining resources for the IAF. Study ISSN 1946-052X 2017 ajfa.macrothink.org 162 contributes to current auditing-related governance literature by introducing a comprehensive empirical model of AC effectiveness in facilitating the scope and quality of the IAF's work. Also, the findings have implications for regulators and the Institute of Internal Auditors (IIA) in terms of the composition and functioning of ACs. Asian Journal of Finance & Accounting

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Factors Associated with U.S. Public Companies' Investment in Internal Auditing

Cited by 207 publications

References 13 publications

The use of internal audit by Australian companies

The use of internal audit by Australian companies

A Conceptual Framework of Potential Conflicts with the Role of the Internal Auditor in Enterprise Risk Management

Resourcing the Internal Audit Function: How Effective is the Audit Committee?

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