When Does the Internal Audit Function Enhance Audit Committee Effectiveness?

Abstract

I examine whether audit committees (ACs) improve financial reporting reliability by utilizing an internal audit function (IAF) as a resource. I use semi-structured interviews with chief audit executives and AC chairs to develop an understanding of the nature of AC-IAF relations. Then using AC charters, I measure AC interaction with IAFs, finding an improvement in financial reporting reliability for firms that introduce a new IAF under a NYSE mandate. Importantly, this improvement is limited to firms with significant interaction between ACs and the new IAFs. Using detailed hand-coded data, I investigate the different kinds of interactions between ACs and IAFs, finding evidence of the importance of private meetings to review the IAF’s scope, findings, and recommendations. The value of the IAF as a resource to the AC is greater when the AC ensures free and open communication, promotes IAF independence, and stands in greater ex ante need of monitoring assistance.

The Impact of Audit Technology on Audit Task Outcomes: Evidence for Technology‐Based Audit Techniques*

“…Finally, we inform the increasing number of researchers examining how internal auditing provides value to the organization (Prawitt et al 2009, 2012; Ege 2015; Abbott et al 2016; Bills et al 2022; Ege et al 2022; Jaggi 2022). As audit technology implementation continues to mature in organizations, our work can help launch future research into how internal auditing can provide more value to the organizations' operating effectiveness, efficiency, risk management, accounting quality, and other issues.…”

Reconstructing legitimacy of internal auditing during ERP implementations: two contrasting cases

“…Its UK affiliate puts stress in its code on "acting in the public interest" (CIIA, 2022). The differences in emphasis underline the tensions in the profession (Ekl€ ov Alander, 2023;Jaggi, 2023;Roussy, 2015;Sarens et al, 2009).…”

“…Arguably, this is because of the inconsistency and practical conflicts surrounding traditional assurance-oriented roles and the emerging businesspartnering role of IAs. While assurance requires distancing from line functions, businesspartnering requires close collaboration with line functions (Christopher et al, 2009;Jaggi, 2023;Sarens et al, 2013;Sarens and de Beelde, 2006). Inconsistency of internal audit practices is also attributed to poor structural and functional arrangements (Christopher, 2019;Vinnari and Skaerbaek, 2014) that exacerbate ambiguity on the role of IAs as assurance providers to the board vs partners to the management (Norman et al, 2010;Roussy and Brivot, 2016).…”