Internal audit standard compliance, potentially competing duties, and external auditors' reliance decision

Breger, David; Edmonds, Mark; Ortegren, Marc

doi:10.1002/jcaf.22434

Cited by 11 publications

(11 citation statements)

References 32 publications

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“…to the IAF directly or through the management). Prior research suggests that external auditors seem to have over-relied on IA performance as a reliable watchdog (Breger et al, 2020). Therefore, the psychological experience of powerlessness in the face of warning signs causes IA to remain silent.…”

Section: An Appropriate Organisational Position For Iamentioning

confidence: 99%

Mapping of internal audit research: a post-Enron structured literature review

Kotb

Elbardan

Halabi

2020

AAAJ

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PurposeThis paper reviews the field of internal auditing (IA) post-Enron to develop insights into how IA research has developed, offer a critique of the research to date and identify ways that future research can help to advance IA.Design/methodology/approachA structured literature review (SLR) was used to analyse 471 papers from 64 journals published between 2005 and 2018 based on a number of criteria, namely author, journal type, journal location, year, theme, theory, nature of research, research setting, regional focus, method and citations.FindingsThe IA literature has not significantly contributed to knowledge of the internal audit function (IAF), and one still knows relatively little about the factors that contribute to making the impact of IA practice effective and measurable. The IA literature is US-dominated (authors and journals), focussed on the American context (publicly listed companies), reliant on positivist analyses and largely makes no explicit reference to theory. Central regions (emerging economies) and key organisational settings (private SMEs and not-for-profit organisations) are largely absent in prior IA research. This paper evaluates and identifies avenues through which future research can help to advance IA in order to address emerging challenges in the field.Originality/valueThis is the first comprehensive review to analyse IA research in the post-Enron period (2005–2018). The findings are relevant to researchers who are looking for appropriate research outlets and emerging scholars who wish to identify their own research directions.

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Section: An Appropriate Organisational Position For Iamentioning

confidence: 99%

Mapping of internal audit research: a post-Enron structured literature review

Kotb

Elbardan

Halabi

2020

AAAJ

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“…For example, Archambeault et al (2008) found that internal audit disclosures promote investors' understanding of the internal audit function in governance. Breger et al (2020) argued that external auditors have increased their reliance on internal auditing since the Sarbanes-Oxley Act 2002 and found that these auditors are willing to rely on internal audit work if they adhere to the standards on internal auditing practices issued by the Institute of Internal Auditors (IIA). Cular et al ( 2020) examined the reliance of external auditors on the internal audit function and found that if such function provides consulting services on enterprise risk management, then the reliance of external auditors will only increase when the audit committee effectiveness is strengthened.…”

Section: Internal Auditingmentioning

confidence: 99%

“…Cular et al ( 2020) examined the reliance of external auditors on the internal audit function and found that if such function provides consulting services on enterprise risk management, then the reliance of external auditors will only increase when the audit committee effectiveness is strengthened. Both Breger et al (2020) and Cular et al (2020) studies were examine in an environment where external auditors are no longer allowed to provide internal audit services to their audit clients. The regulation applies both in the US Sarbanes Oxley Act (2002) and Malaysia (2008).…”

Section: Internal Auditingmentioning

confidence: 99%

“…Prawitt et al (2009) also found that a well-funded internal audit function can provide additional resources that help the internal audit department in hiring and retaining highly competent personnel. According to Breger et al (2020), an external auditor chooses to rely on internal audit works if the internal auditors are highly competent and objective. They also show that the compliance of internal audit to IIA standards influences the reliance decision of external auditors.…”

Section: Internal Auditingmentioning

confidence: 99%

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The Impacts of Investment in Internal Audit Functions on the Going Concern Opinion for Financially Distressed Firms

2020

AJAG

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We investigate the effects of internal audit investments on financially distressed firms in Malaysia. Specifically, we examine the impacts of internal audit investments on these firms' going concern opinion. We argue that higher internal audit investments expedite these firms' recoverability by improving their controls and operations. The assurance and consulting activities provided by internal auditors enable these firms to mitigate the material uncertainty of the going concern opinions issued by external auditors. To examine such relationship, we chose 137 firm-year observations of Malaysian financially distressed firms listed on Bursa Malaysia from 2016 to 2018. We ran a logistic regression analysis and found that internal audit investments are negatively and significantly associated with the going concern opinions reported by an external auditor. This result suggests that high internal audit investments reduce the likelihood for an external auditor to issue a going concern opinion. As stated in ISA 570, if recovery plans have no material uncertainty and are sufficient to mitigate the going concern problem (which is argued to be assisted by the internal audit function of the firm), then an external auditor can issue a clean audit report even for firms that are in financial distress. Evidence from this study contributes to our understanding of the importance of investments in internal audit functions and highlights that the assurance and consultation from internal auditors can ensure a careful monitoring of the strategies and operations of firms.

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“…Over the years, authors have identified several gaps and have encouraged continual research in the area of IA. Breger, Edmonds, and Ortegren (2020) thought that the perspective of EA towards IA was worthy of research since EA often relies on the work of the IA. However, Soh and Martinov‐Bennie (2011) believed that the perceptions of all others in the CG mosaic should be sought toward IA.…”

Section: Introductionmentioning

confidence: 99%

The role of internal audit in the risk management process: A developing economy perspective

Weekes-Marshall

2020

J Corp Accounting Finance

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Companies in developing economies have faced a myriad of risks. Many of them due to external related party exposures and the potential risks of associated contagion. The function of Internal Audit (IA) has emerged as a significant governance mechanism in the management of risk in developing countries. This exploratory study sought to identify the role of IA across the developing economy of Barbados. Based upon the results of an online survey administered to the Barbados chapter of the Institute of Internal Auditors (IIA), the paper examines IA involvement in the risk management process (RMP) of several types of companies. Findings reveal that IA is critical to the RMP and that it needs to be enhanced through improved risk education, exposure, and training, along with increased support from Audit Committee and Senior Management. The generalizability of the conclusions is however limited since the sample was drawn from a developing country. The paper adds to the existing literature as it highlights the challenges of IA as it develops in a developing economy while also dealing with their integration into the RM framework. Practical key takeaway from the paper suggests that (a) RM and the IAF are in a developmental stage primarily due to the need for increased exposure and understanding of international risks and best practices. This is especially since most companies maintain extensive international ties and are highly susceptible to contagion. (b) For an integrated RM system to be successful, the management of risk must be owned at all levels throughout the organization and not just at the Board of Directors and Executive Management, and (c) improved communication of roles and accountabilities especially for IA should be instituted to ensure proper diffusion of risk culture within the organization.

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Internal audit standard compliance, potentially competing duties, and external auditors' reliance decision

Cited by 11 publications

References 32 publications

Mapping of internal audit research: a post-Enron structured literature review

Mapping of internal audit research: a post-Enron structured literature review

The Impacts of Investment in Internal Audit Functions on the Going Concern Opinion for Financially Distressed Firms

The role of internal audit in the risk management process: A developing economy perspective

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