The Role of the Internal Audit Function in the Disclosure of Material Weaknesses

2010 ◽  
Author(s):  
Shu Lin ◽  
Mina Pizzini ◽  
Mark E. Vargus ◽  
Indranil Bardhan
Keyword(s):  
Internal Audit ◽  
Internal Audit Function ◽  
Material Weaknesses

The Role of the Internal Audit Function in the Disclosure of Material Weaknesses

2011 ◽  
Vol 86 (1) ◽  
pp. 287-323 ◽  
Author(s):  
Shu Lin ◽  
Mina Pizzini ◽  
Mark Vargus ◽  
Indranil R. Bardhan
Keyword(s):  
Financial Reporting ◽  
Internal Audit ◽  
Section 404 ◽  
Material Weakness ◽  
Internal Auditor ◽  
Internal Audit Function ◽  
Sarbanes Oxley ◽  
Material Weaknesses ◽  
Using Data

ABSTRACT: This study investigates the role that a firm’s internal audit function (IAF) plays in the disclosure of material weaknesses reported under Section 404 of the Sarbanes-Oxley Act of 2002 (U.S. Congress 2002). Using data from 214 firms, we examine the relation between material weakness (MW) disclosures and various IAF attributes and activities. Our results indicate that MW disclosures are negatively associated with the education level of the IAF and the extent to which the IAF incorporates quality assurance techniques into fieldwork, audits activities related to financial reporting, and monitors the remediation of previously identified control problems. The timing of Section 404 work and the nature of follow-up monitoring suggests that these aspects of IAF quality help prevent MWs from occurring. We find that MW disclosures are positively associated with the IAF practice of grading audit engagements and external-internal auditor coordination, suggesting that these activities increase the effectiveness of Section 404 compliance processes.

Factors associated with security/cybersecurity audit by internal audit function

2018 ◽  
Vol 33 (4) ◽  
pp. 377-409 ◽  
Author(s):  
Md. Shariful Islam ◽  
Nusrat Farah ◽  
Thomas F. Stafford
Keyword(s):  
Audit Committee ◽  
Internal Audit ◽  
Mixed Effect ◽  
Content Type ◽  
Internal Auditors ◽  
Factors Associated ◽  
Security Breaches ◽  
Internal Audit Function ◽  
Enterprise Risk

Purpose The purpose of the study is to explore the factors associated with the extent of security/cybersecurity audit by the internal audit function (IAF) of the firm. Specifically, the authors focused on whether IAF/CAE (certified audit executive [CAE]) characteristics, board involvement related to governance, role of the audit committee (or equivalent) and the chief risk officer (CRO) and IAF tasked with enterprise risk management (ERM) are associated with the extent to which the firm engages in security/cybersecurity audit. Design/methodology/approach For analysis, the paper uses responses of 970 CAEs as compiled in the Common Body of Knowledge database (CBOK, 2015) developed by the Institute of Internal Auditors Research Foundation (IIARF). Findings The results of the study suggest that the extent of security/cybersecurity audit by IAF is significantly and positively associated with IAF competence related to governance, risk and control. Board support regarding governance is also significant and positive. However, the Audit Committee (AC) or equivalent and the CRO role are not significant across the regions studied. Comprehensive risk assessment done by IAF and IAF quality have a significant and positive effect on security/cybersecurity audit. Unexpectedly, CAEs with security certification and IAFs tasked with ERM do not have a significant effect on security/cybersecurity audit; however, other certifications such as CISA or CPA have a marginal or mixed effect on the extent of security/cybersecurity audit. Originality/value This study is the first to describe IAF involvement in security/cybersecurity audit. It provides insights into the specific IAF/CAE characteristics and corporate governance characteristics that can lead IAF to contribute significantly to security/cybersecurity audit. The findings add to the results of prior studies on the IAF involvement in different IT-related aspects such as IT audit and XBRL implementation and on the role of the board and the audit committee (or its equivalent) in ERM and the detection and correction of security breaches.

Internal Auditing in India and China: Some Empirical Evidence and Issues for Research

2018 ◽  
Vol 34 (4) ◽  
pp. 511-523 ◽  
Author(s):  
R. Narayanaswamy ◽  
K. Raghunandan ◽  
Dasaratha V. Rama
Keyword(s):  
Empirical Evidence ◽  
Emerging Economies ◽  
Internal Audit ◽  
The United States ◽  
Future Research ◽  
Internal Auditing ◽  
Internal Auditors ◽  
Internal Audit Function ◽  
India And China

Internal auditing is an important element in the corporate governance framework. Yet, research related to internal auditing, particularly in emerging economies like India and China, is sparse. We use data from responses provided by chief audit executives to provide empirical evidence about the extent of support for internal auditing and the determinants of such support in India and China, and compare the data with those from the United States. We find that such support is negatively related to pressure on internal auditors to suppress or alter their findings. We also provide descriptive evidence about the work and staffing of the internal audit function. We discuss the role of internal auditing in India and identify some possible avenues for future research.

scholarly journals Audit committee – internal audit interaction and moral courage

2016 ◽  
Vol 31 (4/5) ◽  
pp. 403-433 ◽  
Author(s):  
Imen Khelil ◽  
Khaled Hussainey ◽  
Hedi Noubbigh
Keyword(s):  
Audit Committee ◽  
Critical Role ◽  
Internal Audit ◽  
Moral Courage ◽  
Content Type ◽  
Second Stage ◽  
Internal Audit Function ◽  
Mixed Approach ◽  
Positive Effect

Purpose This paper aims to offer empirical evidence about the effect of the interaction between the audit committee and the internal audit function (IAF) on the moral courage of the chief audit executive (CAE). Design/methodology/approach A mixed approach was followed. In the first stage, questionnaires were sent to CAEs of 60 listed, financial and non-financial Tunisian companies. To enhance the depth of the analysis, in the second stage, semi-directed interviews with 22 CAEs from listed financial and non-financial Tunisian companies were performed. Findings This paper found 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 programmes 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. It also found an insignificant relationship between the audit committee’s examination of interaction between management and the IAF and the moral courage of the CAE. Originality/value To the best of the authors' knowledge, this paper fills 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.

scholarly journals The Effect of Audit Committee Characteristics on Audit Quality: The Moderating Role of Internal Audit Function

2020 ◽  
Vol 3 (2) ◽  
Author(s):  
Josephine Kuan Pei See ◽  
Anwar Allah Pitchay ◽  
Yuvaraj Ganesan ◽  
Hasnah Haron ◽  
Ratih Hendayani
Keyword(s):  
Structural Equation ◽  
Audit Committee ◽  
Audit Quality ◽  
Internal Audit ◽  
Secondary Data ◽  
Listed Companies ◽  
Internal Audit Function ◽  
The Relationship ◽  
Moderating Role

The purposes of study are to examine the effect of audit committee characteristics namely gender, frequency of meetings, independence member in audit committee and audit committee size on audit quality and the moderating role of internal audit function in the relationship between audit committee characteristics and audit quality. The objective is to contribute to the new evidence on the role of audit committee characteristics plays towards the audit quality with internal audit function as moderator. This research applied a quantitative approach and secondary data as the main source of information for analysis. Stratified random sampling techniques are being used in this study. Further, the structural equation modelling (SEM) approach via SmartPLS was utilized to achieve the research purpose by evaluating the data collected from 250 public listed companies in Malaysia. The results reveal that only three of the audit committee characteristics, namely presence of female members in the audit committee, frequency of meetings and independence of directors, are positively influencing the audit quality for listed companies in Malaysia. Surprisingly, this study also found that internal audit function did not play the moderating effect in the relationship between audit committee characteristics and audit quality. The findings will facilitate researchers and scholars to enhance the understanding of audit committee characteristics particularly the gender, frequency of AC meetings and independence members in the audit committee played in improving overall audit quality. The companies’ stakeholders like professional accountancy body and governments may use the outcomes from this research study to improve existing rules and government regulations and code of conducts of its members to improve the quality of their works. This study contributes to the relatively new discussion on the effect of audit committee characteristics on audit quality by adding internal audit function as a moderator in Malaysia. The outcome from this study may assist the companies’ stakeholders like professional accountancy body and governments in determining improved methods to enhance audit committee characteristics in improving audit quality.

Internal audit function and real earnings management practices in an emerging market

2020 ◽  
Vol 28 (6) ◽  
pp. 1209-1230
Author(s):  
Belal Ali Abdulraheem Ghaleb ◽  
Hasnah Kamardin ◽  
Adel Ali Al-Qadasi
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Emerging Market ◽  
Negative Relationship ◽  
Internal Audit ◽  
Least Square ◽  
Real Earnings Management ◽  
Content Type ◽  
Internal Audit Function

Purpose This study aims to investigate the monitoring role of internal audit function (IAF) on real earnings management (REM) practices. It examines the effect of investment in IAF (IIAF) and IAF sourcing arrangements on REM, unlike prior literature which has mainly examined the effects of IIAF on accrual-based earnings management. Design/methodology/approach This study uses a sample of 1,056 observations from an emerging market, Malaysia, between 2013 and 2016. Feasible generalised least square (FGLS) regression is used to analyse the data. To corroborate the results of this study, the authors use an ordinary least square (OLS) regression model with robust standard errors adjusted and also consider alternative REM measures. Findings The results of this study suggest that IIAF has a significant negative relationship with REM practices. Further, in-house IAF sourcing has a significant negative association with REM. The additional analysis supports the main results confirming the essential role of IAF in reducing REM in the Malaysian market. Practical implications The evidence relates to the important role of IAF in mitigating REM practices. High-quality of IAF impairs managers’ ability to manage earnings in their own interests. The findings may be useful in informing regulators, managers, shareholders and other investors, as well as researchers, about improving the role of IAF. Originality/value This study contributes to the existing literature by providing the first evidence of the significant role of IIAF and IAF sourcing arrangements in mitigating REM in an emerging country.

INTERNAL AUDIT - EFFECTIVE INSTUMENTY OF CORPORATE GOVERNANCE SYSTEM

2016 ◽  
Vol 11 (2) ◽  
pp. 95-99 ◽  
Author(s):  
Закирова ◽  
Alsu Zakirova ◽  
Клычова ◽  
Augul Klychova ◽  
Клычова ◽  
...  
Keyword(s):  
Internal Control ◽  
Internal Audit ◽  
Governance System ◽  
Internal Audit Function ◽  
Wide Range ◽  
Corporate Governance System ◽  
Internal Control System ◽  
Range Of Functions ◽  
Domestic Companies

Today the debatable problem is the effectiveness of internal control system. That internal audit, as a part of interfarm monitoring systems, has a wide range of functions, that go beyond the range of issues, relating to internal control. In Russia, there are no laws and regulations, governing the internal audit organization. The absence of a rigid framework is a prerequisite for creating the most effective internal audit service. The establishment an internal audit function is also becoming increasingly necessary because of competition and integration of foreign and domestic companies. This article provides an irreplaceable role of internal audit in terms of its objectives and functions.

scholarly journals The Role of Using Six Sigma Approach for Activating and Improving the Internal Audit , and its reflections on the Quality of Accounting Information

2017 ◽  
Vol 3 (3) ◽  
pp. 347
Author(s):  
Chya Kareem Ahmad
Keyword(s):  
Human Resources ◽  
Six Sigma ◽  
Statistical Significance ◽  
Accounting Information ◽  
Internal Audit ◽  
Internal Audit Function ◽  
Quality Of Accounting Information ◽  
Six Sigma Approach

The objective of the research is to use the Six Sigma approach to activate the internal audit and its reflections  on the quality of accounting information. The main objective of the Sigma approach is to activate the role of supervision in all areas of the economic unit in order to meet the changing needs of customers, market and technology for the benefit of employees, customers and shareholders.There is a significant correlation between the Six Sigma principles and internal audit , There is also a significant statistical significance for the role of using Six Sigma approach and the internal and its reflections on the quality of the accounting information. The Six-Sigma approach will improve the internal audit function, which in turn will lead to the availability of quality accounting information. The research recommended that the economic units should involve the employees in the processes and systems and the attention to human resources and the good suggestions presented by the employees. It also leads to the avoidance and occupation of power for personal purposes.

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