The Influence of Management's Internal Audit Experience on Earnings Management*

Abstract

We examine whether firms with managers that have prior internal audit experience are less likely to manage earnings. This examination is important because the internal audit function (IAF) is uniquely positioned to provide experiences that could influence future managerial behavior, including limiting the potential negative repercussions of earnings management. We find that firms with managers that have internal audit experience are associated with lower real earnings management (REM) but not accruals‐based earnings management. Effects are strongest when managers with internal audit experience have greater power or currently hold financial roles, or when there are a greater number of managers with internal audit experience. The results are robust to including firm fixed effects, using entropy‐balancing and performance‐matching approaches, using a subsample of firm‐years required to have an IAF, using a subsample of firms for which we can measure IAF quality, and measuring internal audit experience at a previous employer. These results point to an important benefit of manager internal audit experience, as research suggests that REM is common, difficult to detect, not always within the scope of financial reporting regulators, and detrimental to future performance.

Aplicación del modelo de sistema corporativo abierto para el manejo de la contabilidad administrativa del Grupo Empresarial SACSA

“…Al respecto, no tuvimos respuesta, dado que es información que se reserva solo para los altos directivos y consejo de administración de la organización. Ege et al (2022) destacan que la información contable debe administrarse por profesionistas que manejen estándares de auditoría interna, a fin de registrar de manera objetiva los beneficios de ganancias reales; dado que los efectos son fijos y más fuertes al disminuir la "entropía contable", en este sentido, es importante desarrollar un correcto manejo estratégico de ventas y control de insumos, a fin de determinar el grado de desorden operacional que existe en la empresa. De ahí que cuando los gerentes con experiencia en auditoría interna tienen mayor poder o actualmente desempeñan funciones contables y financieras.…”

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.…”

Internal control, debt risk, CEO education and earnings management evidence from China

“…These effects may have an impact on future managerial behavior, including limiting the adverse effects of earnings management. This is significant since most businesses can either supply internal audit knowledge to their own workers or acquire it through the hiring process (Ege et al , 2022). Cohen and Zarowin (2010) assert that there are at least two justifications for executives’ greater propensity to manage earnings through actual operations as opposed to accruals.…”