Audit committee – internal audit interaction and moral courage

Abstract

We aim to offer empirical evidence about the effect of the interaction between the audit committee and internal audit function (IAF) on the moral courage of the chief audit executive (CAE). Methodology: We follow a mixed approach. In a first stage, we sent questionnaires to CAEs of 60 listed, financial and non-financial Tunisian companies. To enhance the depth of our analysis, we performed, in the second stage, semi-directed interviews with 22 CAEs from listed financial and non-financial Tunisian companies. Findings: We find that the existence of private access to the audit committee has a positive effect on the moral courage of the CAE. The number of meetings between the audit committee and the CAE, the examination of internal audit programs and results together with the contribution of the audit committee to the appointment and dismissal of the CAE do not show a significant link with the moral courage of the CAE. We also find an insignificant relationship between the audit committee's examination of interaction between management and the IAF and the moral courage of the CAE. Originality: To the best of our knowledge, we fill one of the major research gaps in the auditing literature by demonstrating the critical role of audit committee-internal audit interaction in promoting the CAE's moral courage to behave ethically.

Breaking the silence: An empirical analysis of the drivers of internal auditors' moral courage

“…The results emerging from the analysis of both models indicate that the independence of IAF has a positive and significant effect on internal auditors' moral courage ( p < .05). Such results provide strong support for H5 and confirm the view of Khelil et al (). According to Khelil et al (), the independence of IAF which is ensured by the audit committee fosters the moral courage among internal auditors, enabling them to speak up about managerial wrongdoings.…”

“…Such results provide strong support for H5 and confirm the view of Khelil et al (). According to Khelil et al (), the independence of IAF which is ensured by the audit committee fosters the moral courage among internal auditors, enabling them to speak up about managerial wrongdoings. Similarly, these results are consistent with those of James (), who reveals that internal auditors that report solely to the audit committee are more capable of preventing fraudulent reporting than auditors that report to senior management are.…”

“…We should note that, concerning the IAF independence measure, prior internal audit literature often uses a dichotomous, single‐variable measure and then it implicitly ignores other potential independence determinants (e.g., Khelil et al, ). To address this gap, we relied on three critical determinants of IAF independence (reporting lines, termination rights, and budgetary control) defined in the studies of Abbott et al (, ).…”

“…Given that internal auditors can experience familiarity and threats of social pressure generated from their relationships with managers (Khelil et al, ), the aforementioned standard stresses the fact that “the chief audit executive should report to a level within the organization that allows the internal audit activity to fulfill its responsibilities.”…”

“…Khelil et al () assert that the organizational position of the IAF permits the enhancement of its effectiveness by fostering the CAE's courage. They find that the participation of the audit committee in CAE hiring/firing decisions might not promote the CAE's moral courage.…”