The use of internal audit by Australian companies

Abstract

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.

Exploring the determinants of internal audit: Evidence from ownership structure

“…Currently, the theoretical discussion on the determinants of the internal audit is rather limited (Wallace & Kreutzfeldt, 1991;Carey, Simnett, & Tanewski, 2000;Goodwin & Kent, 2004;Carcello et al, 2005;Goodwin-Stewart & Kent, 2006). Prior research has investigated voluntary demand for internal audit (Carey et al, 2000;Goodwin & Kent, 2004;Goodwin-Stewart & Kent, 2006;Wallace & Kreutzfeldt, 1991), factors affecting internal audit budgets (Carcello et al, 2005), and the size of the internal audit function (Anderson et al, 2012).…”

Factors influencing corporate governance disclosure of companies listed on the Alternative Exchange (AltX) in South Africa

“…The costs associated with an internal auditing function simply outweigh the associated benefits to these companies (Goodwin-Stewart & Kent, 2006).…”

Internal Auditors’ Characteristics and Audit Fees: Evidence from Egyptian Firms

“…Few studies have examined the relation between internal audit and external audit fees and yet with mixed results (Goodwin et al, 2006). Some studies report a negative relation between audit fees and the contribution of internal audit to the external audit (Elliott & Korpi, 1978) and Felix et al, 2001) because of the increased reliance of external auditors on internal auditors work and so lowering audit fees.…”