The Role of the Internal Audit Function in the Disclosure of Material Weaknesses

Lin, Shu; Pizzini, Mina; Vargus, Mark E.; Bardhan, Indranil R.

doi:10.2139/ssrn.1592593

Cited by 57 publications

(91 citation statements)

References 40 publications

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“…Similar control variables were selected to those utilized in prior studies (Lin et al, 2011;Demerjian et al, 2012;Lee et al, 2013;Feng et al, 2015). We control for key firm-specific and industry characteristics expected to assist or challenge a statutory internal auditor in his or her efforts to attain efficiency, such as the natural log of total assets (SIZE), the percentage of revenues earned by the firm within its industry (MS), positive free cash flow (FCFI) and the natural logarithm of the number of years the firm (AGE) has been listed on the KSE or KOSDAQ.…”

Section: Control Variablesmentioning

confidence: 99%

“…We examine the characteristics of statutory internal auditors in Korean firms with total assets less than KRW two trillion (approximately USA $1.9 billion) and their effects on operating efficiency using the ordinary least square regression. While most prior research on internal audit depends on survey data (Abbott et al, 2010;Lin et al, 2011) from the chief audit executive (CAE), or experimental data from a limited sample of firms, this study is based on a large sample of publicly available data. We provide a comprehensive look at the association between characteristics of statutory internal auditors and operating efficiency for new economy firms.…”

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confidence: 99%

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Characteristics of statutory internal auditors and operating efficiency

Cho

Lee

Park

2015

Managerial Auditing Journal

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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.

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Section: Control Variablesmentioning

confidence: 99%

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confidence: 99%

Characteristics of statutory internal auditors and operating efficiency

Cho

Lee

Park

2015

Managerial Auditing Journal

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“…The professional expertise internal audit employees can obtain through their education and through certifications related to internal audit is likely to have an effect on the quality of internal control. In fact, higher financial expertise is likely to reduce the incidence of internal control problems (Krishnan, ) and the disclosure of material weaknesses (Lin, Pizzini, Vargus, & Bardhan, ). Because financial expertise has a positive impact on the quality of internal controls, we may expect higher external financial expertise to reduce the need for IAFs to co‐source their activities, as the employees already have the skills to efficiently run their activities.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

“…The importance of IAF autonomy to preserve its independence is also demanded by the Institute of Internal Auditors (IIA), which requires internal audit activities to be independent and internal auditors to be objective in performing their activities (IIA, ). To be objective, an IAF needs to be less influenced by managers or specific tasks determined by limited sources to establish an audit plan, so that the IAF is more likely to find and report internal control problems to the audit committee (Lin et al, ). Therefore, to better perform their activities, internal auditors must remain unbiased (Norman, Rose, & Rose, ).…”

Section: Hypotheses Developmentmentioning

confidence: 99%

Internal audit function characteristics and external auditors' co‐sourcing in different institutional contexts

Jokipii

Meo

2019

Int J Auditing

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We examine the association between several characteristics of an internal audit function (IAF) and fees paid to external auditors to support internal audit activities (co‐sourcing). We also analyze how this relation is influenced by the mandatory or voluntary implementation of IAFs. By using data from the Common Body of Knowledge (CBOK) study, which was conducted by the Institute of Internal Auditors Research Foundation in 2015, we find that more consulting‐oriented IAFs and more autonomous IAFs are likely to pay higher co‐sourcing fees, whereas IAFs with greater expertise are likely to pay lower co‐sourcing fees. Although results related to consulting activities hold regardless of the institutional context, the negative association between IAF expertise and co‐sourcing fees paid to support internal audit activities only holds in mandatory IAF environments, and the positive association between IAF autonomy and co‐sourcing fees paid only holds where IAF is voluntary.

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“…Academic research finds that when auditors are able to use the work of internal auditors, there are audit efficiencies and reduced audit delays (e.g., Pizzini, Lin, and Ziegenfuss 2014), improved financial reporting and audit quality (Asare, Davidson, and Gramling 2008), and greater identification of internal control deficiencies (Lin, Pizzini, Vargus, and Bardhan 2011). Using the work of others has benefits to the financial statement audit process.…”

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confidence: 99%

The Auditing Standards Committee of the Auditing Section of the American Accounting Association is Pleased to Provide Comments on PCAOB Staff Consultation Paper No. 2015-01, The Auditor's Use of the Work of Specialists

Joe¹,

Janvrin²,

Barr‐Pulliam³

et al. 2015

Current Issues in Auditing

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SUMMARY On May 28, 2015 the Public Company Accounting Oversight Board (hereafter, the Board) issued Staff Consultation Paper No. 2015-01 (hereafter, the Staff Consultation Paper) to seek information and input on the potential need to improve standards related to the auditor's use of the work of specialists. The Board requested input from investors, accounting firms, specialists, companies, and others (such as academics) about (1) current practices, (2) the potential need for changes, and (3) possible alternative regulatory approaches, and any associated economic implications, for potential improvement in standards related to oversight and assessing the objectivity of employed and engaged specialists. The comment period ended July 31, 2015. This commentary summarizes the contributors' views on selected questions posed in the Staff Consultation Paper. Data Availability: The invitation to comment (through July 31, 2015), with links to the Consultation Paper, is available at: http://www.pcaobus.org/Standards/Pages/SCP_Specialists.aspx

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The Role of the Internal Audit Function in the Disclosure of Material Weaknesses

Cited by 57 publications

References 40 publications

Characteristics of statutory internal auditors and operating efficiency

Characteristics of statutory internal auditors and operating efficiency

Internal audit function characteristics and external auditors' co‐sourcing in different institutional contexts

The Auditing Standards Committee of the Auditing Section of the American Accounting Association is Pleased to Provide Comments on PCAOB Staff Consultation Paper No. 2015-01, The Auditor's Use of the Work of Specialists

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