Does Internal Audit Function Quality Deter Management Misconduct?

Ege, Matthew

doi:10.2139/ssrn.2398552

Cited by 14 publications

(13 citation statements)

References 18 publications

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“…There is a growing body of literature showing positive effects of internal auditing, e.g. in the areas of improved financial reporting (Prawitt et al, 2009(Prawitt et al, , 2012Abbott et al, 2012Abbott et al, , 2016, improved corporate governance (Lenz et al, 2014), better fraud risk assessments and detection (Ege, 2015) and better internal controls (Lin et al, 2011).…”

Section: Introductionmentioning

confidence: 99%

The Internal Audit Dilemma - The Impact of Executive Directors Versus Audit Committees on Internal Auditing Work

Eulerich

Henseler²,

Köhler

2017

SSRN Journal

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Section: Introductionmentioning

confidence: 99%

The Internal Audit Dilemma - The Impact of Executive Directors Versus Audit Committees on Internal Auditing Work

Eulerich

Henseler²,

Köhler

2017

SSRN Journal

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“…In addition, CAEs can show commitment to the development of important skills for internal auditors through further training. The development of the right internal audit competence is important, since it is negatively associated with the likelihood of management misconduct (Ege, 2015).…”

Section: Discussionmentioning

confidence: 99%

“…The use of the IA Function as an MTG can influence internal auditors' objectivity (and their judgments) and has been included in previous research as one dimension of internal audit quality (Ege, 2015). Abbott et al (2010), Messier et al (2011), andChrist et al (2015) reported that the use of the IA Function as an MTG is common practice in a majority of public companies.…”

Section: The Internal Audit Function As a Management Training Groundmentioning

confidence: 99%

“…Previous (archival) research has mostly looked at MTG and reporting line in aggregated IA Function quality measures that also include, for instance, experience, certification, training, and size (Ege, 2015). While previous behavioral studies examine either (1) the issue of the IA Function being used as an MTG or (2) the IA Function's reporting lines, none addresses the interaction effect of using the IA Function as an MTG and reporting to either senior management or the audit committee, who might have different outcome preferences.…”

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confidence: 99%

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An experimental investigation of the interaction effect of management training ground and reporting lines on internal auditors’ objectivity

et al. 2018

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Seventy‐nine experienced internal auditors participated in an experiment investigating two factors that may affect internal auditors’ objectivity: (1) whether the internal audit function is used as a management training ground, and (2) whether the internal auditors’ reporting line is to management or the audit committee. Participants completed a case wherein management and the audit committee hold conflicting preferences regarding a major corporate investment opportunity. Participants evaluated relevant business risks and made an overall recommendation concerning the investment. The results include three important findings. First, we observe an interaction effect between management training ground and reporting line. When the internal audit function is not used as a management training ground, internal auditors’ risks assessments do not significantly differ by reporting line. However, when the internal audit function is used as a management training ground, internal auditors’ risk assessments align with management's preferences when auditors report to senior management versus the audit committee. Second, when the internal audit function is a management training ground, internal auditors provide more favorable investment recommendations (i.e., consistent with management's preferences). Third, internal auditors unexpectedly provided more favorable recommendations to the audit committee than to management.

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“…Given the unobservability of the IAF process, there are no generally agreedupon proxies for IAF quality (DeFond and Zhang 2014, 296) and no publicly available IAF data in Audit Analytics and other public databases. Ege (2015) uses proprietary data (that he is not permitted to share) that include IAF investment, independence, experience, certification, and training to measure IAF quality. and include that as a control in our second-stage regressions (untabulated).…”

mentioning

confidence: 99%

Do Clients’ Enterprise Systems Affect Audit Quality and Efficiency?

Pincus

Tian

Wellmeyer

et al. 2017

Contemporary Accting Res

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Enterprise systems (ESs) are widely used to support business processes along the enterprise value chain. It has been shown that ESs, by integrating business functions and making information about day‐to‐day activities available, enhance operational transparency and improve the internal information environment. However, while ES‐based business infrastructures can offer many benefits, their prevalence and increased complexity have also brought new challenges to external auditors. Motivated by the prominence of this issue for auditors and regulators and by the scarcity of research jointly examining ESs and auditors’ work, we investigate whether the presence and extent of client firms’ ES implementations are related to the quality and efficiency of auditors’ work. Using proprietary archival data on ES implementations and controlling for self‐selection, we find that ES implementation improves the quality and efficiency of current and future years’ audit work. Specifically, there are fewer restatements, a greater likelihood of auditors issuing going‐concern opinions to firms that do not survive, higher accruals‐based auditing quality, a lower likelihood of Form 10‐K filing delays, and generally lower audit fees. We further show that the benefits of ESs generally increase with the scope of implementation and are generally greater when the ES includes accounting and finance systems. Inconsistent with improvement in the quality of auditors’ work, we find no evidence that ESs help auditors identify material weaknesses in advance of restatement announcements and we find that, even in the presence of ESs, auditors issue an excessive number of going‐concern opinions to clients that survive.

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Does Internal Audit Function Quality Deter Management Misconduct?

Cited by 14 publications

References 18 publications

The Internal Audit Dilemma - The Impact of Executive Directors Versus Audit Committees on Internal Auditing Work

The Internal Audit Dilemma - The Impact of Executive Directors Versus Audit Committees on Internal Auditing Work

An experimental investigation of the interaction effect of management training ground and reporting lines on internal auditors’ objectivity

Do Clients’ Enterprise Systems Affect Audit Quality and Efficiency?

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