Monitoring Effects of the Internal Audit Function: Agency Theory versus other Explanatory Variables

Sarens, Gerrit; Abdolmohammadi, Mohammad J.

doi:10.1111/j.1099-1123.2010.00419.x

Cited by 137 publications

(147 citation statements)

References 46 publications

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“…There is a need to align managers' interests to the firm's interest through a code of governance. Sarens and Abdolmohammadi [14] explain that agency theory allows the agent to have more information than principals and that information asymmetry adversely affects the principals' ability to monitor if agents are properly serving their interests. Whatever the objective of a company, separating ownership and control may reduce agency problems, notably the asymmetry of information that arises between the agents and principals [15].…”

Section: Theoretical Framework: Agency Theorymentioning

confidence: 99%

Effect of Corporate Governance Structure on the Financial Performance of Johannesburg Stock Exchange (JSE)-Listed Mining Firms

Dzingai

Fakoya

2017

Sustainability

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There have been many corporate collapses and financial crises in recent years linked to a lack of effective corporate governance. The South African King IV Code of Corporate Governance recommends that corporate governing bodies should be comprised of an appropriate balance of knowledge, diversity, and independence for discharging their duties objectively and more efficiently. This study examines the effect of corporate governance structures on firm financial performance. The secondary data of selected Johannesburg Stock Exchange (JSE), Socially Responsible Investment (SRI) Index-listed mining firms' sustainability reports, and integrated annual financial statements are used. Using panel data analysis of the random effects model, we determined the relationship between board independence and board size and the return on equity (ROE) for the period 2010-2015. Results indicate a weak negative correlation between ROE and board size, and a weak, but positive, correlation between ROE and board independence. Additionally, there is a positive, but weak, correlation between ROE and sales growth, but a negative and weak relationship between ROE and firm size. The study suggests that effective corporate governance through a small effective board and monitoring by an independent board result in increased firm financial performance. We recommend that South African companies see compliance with the recommendations of the King IV Code on Corporate Governance not as a liability, but an ethical investment that may likely yield financial benefit in the long-term. Although complying with corporate governance principles does not necessarily translate into a significant economic benefit, firms should, however, continue to adopt corporate governance for ethical reasons to meet stakeholder's social and environmental needs for sustainable development.

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Section: Theoretical Framework: Agency Theorymentioning

confidence: 99%

Effect of Corporate Governance Structure on the Financial Performance of Johannesburg Stock Exchange (JSE)-Listed Mining Firms

Dzingai

Fakoya

2017

Sustainability

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“…It also claims that IA has been receiving attention more than ever before the corporate scandals. Sarens and Abdolmohammadi (2011), investigate monitoring effects of the internal audit function. The study finds that IA is central to developing an accountability relationship between management and audit committee.…”

Section: Monitoring Mechanismsmentioning

confidence: 99%

“…The literature are very scanty in Sub-Saharan Africa (Mustapha & Che-Ahmad, 2011;D. Anderson, Francis, & Stokes, 1993;Aguilera, Cuervo-Cazurra, & Kim, 2009;Sarens & Abdolmohammadi, 2011;Adeyemi, Okpala, & Dabor, 2012). With exception of two literature, each of the literature tests either one or two (Huson, Parrino, & Starks, 2001;Marra, Mazzola, & Prencipe, 2011) of the monitoring mechanisms.…”

Section: Introductionmentioning

confidence: 99%

Monitoring Mechanisms, Gender, and Information System Structure in Nigerian Non-Financial Listed Companies

Arowolo¹,

Ahmad²

2016

IJBM

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Monitoring mechanisms are tools for companies to protect the interests of the shareholders, most especially, the minority shareholders from the deviant behaviour of the management and board members. This study examines the relationship between monitoring mechanisms (directorship, internal and external auditing), gender and information system structure in Nigerian non-financial listed companies. The empirical tests for the study are by quantitative analysis approach with data from annual reports and questionnaires (for information system structure and internal auditing not obtainable from annual reports). The findings reveal that both gender and information system structure significantly relates to monitoring mechanisms (directorship, internal auditing and external auditing). This empirical study adds to the literature on the antecedents of organizational attributes in respect of gender and information system structure as related to monitoring mechanisms, particularly in Sub-Saharan African. Likewise, the findings suggest policy implication for the board of directors regarding appropriate board composition and structuring of the information system of a company to mitigate agency problems.

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“…The practice of internal audit. The internal audit function primary role is to provide a view of how well a company's resources are being utilized (Sarens & Abdolmohammadi, 2011). This is accomplished by reviewing the soundness of the bank's corporate governance, risk management, internal controls and compliance processes (Cowan et al, 2013;Soh & Martinov-Bennie, 2011).…”

mentioning

confidence: 99%

“…The consensus view seems to be that, in addition to the innovative nature of financial markets (Baxter, 2009) and mismanagements of the products (Hull, 2012), significant failures were noted in processes related to risk management, specifically credit controls (Ivashina & A legal responsibility for all banks in South Africa (South African Reserve Bank, 1990), the internal audit function is acknowledged as key for risk management and plays a critical role in ensuring banks profitability (Fourie, Plant, Coetzee & Staden, 2013;Sarens & Abdolmohammadi, 2011;Terinte, Onofrei & Firtescu, 2016). Further evidence has also linked good company performance to a well-managed internal audit team (Law and Yuen, 2013).…”

mentioning

confidence: 99%

A qualitative analysis of the internal audit function in the banking sector

Rijamampianina¹

2016

Banks and Bank Systems

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AUTHORSRasoava Rijamampianina https://orcid.org/0000-0002-4631-4801 ARTICLE INFORasoava Rijamampianina (2016 A qualitative analysis of the internal audit function in the banking sector AbstractIn South Africa, the financial sector contributes approximately 10.5% to the country's gross domestic product (GDP). Although the 2007-2009 global financial crisis did not directly impact the domestic market, it threatened the profitability of the financial sector and triggered changes that affected the role of the internal audit function. In particular, stakeholders' expectations from the function have significantly increased. Against this background, the study seeks to identify the key success factors of performing internal audit reviews of capital markets business areas within the big four South African banks. For this purpose, in-depth interviews with experienced internal auditors, risk managers and traders were carried out. The study suggests several implications and recommendations for the risk management, internal audit and audit committee functions that can also be adopted by interested parties from non-financial institutions.

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Monitoring Effects of the Internal Audit Function: Agency Theory versus other Explanatory Variables

Cited by 137 publications

References 46 publications

Effect of Corporate Governance Structure on the Financial Performance of Johannesburg Stock Exchange (JSE)-Listed Mining Firms

Effect of Corporate Governance Structure on the Financial Performance of Johannesburg Stock Exchange (JSE)-Listed Mining Firms

Monitoring Mechanisms, Gender, and Information System Structure in Nigerian Non-Financial Listed Companies

A qualitative analysis of the internal audit function in the banking sector

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