Social Identification and Differences in External and Internal Auditor Objectivity

2011 ◽  
Vol 5 (2) ◽  
pp. P9-P14 ◽  
Author(s):  
Chad M. Stefaniak ◽  
Robert M. Cornell
Keyword(s):  
Internal Control ◽  
Organizational Identification ◽  
Social Identification ◽  
Internal Auditor ◽  
Internal Auditors ◽  
External Auditors ◽  
Audit Efficiency ◽  
Internal Control Deficiencies ◽  
Positive Effect

SUMMARY Stefaniak et al.'s (2012) paper, “The Effects of Organizational Identification on Internal and External Auditors' Evaluation of Internal Control Deficiencies,” investigates how the relationships that internal (external) auditors form with their employers (audit clients) influence their objectivity. Stefaniak et al. (2012) found, in a case concerning an internal control issue, that when internal auditors are more attached to their employers, they are more conservative when control issues. Conversely, when external auditors are more attached to their audit clients, they are more lenient. The primary implication is that external auditors' reliance on internal auditors' work, as suggested by Auditing Standard No. 5, could yield an overall positive effect on audit efficiency and perhaps even effectiveness.

The Effects of Employer and Client Identification on Internal and External Auditors' Evaluations of Internal Control Deficiencies

2012 ◽  
Vol 31 (1) ◽  
pp. 39-56 ◽  
Author(s):  
Chad M. Stefaniak ◽  
Richard W. Houston ◽  
Robert M. Cornell
Keyword(s):  
Internal Control ◽  
Audit Quality ◽  
Data Availability ◽  
Internal Auditor ◽  
Internal Auditors ◽  
External Auditors ◽  
Audit Efficiency ◽  
Public Company ◽  
External Auditor ◽  
Internal Control Deficiencies

SUMMARY The Public Company Accounting Oversight Board's (PCAOB) Auditing Standard No. 5 (AS5) encourages external auditors to rely on internal auditors to increase the efficiency of lower-risk internal control evaluations (PCAOB 2007). We use post-SOX experimental data to compare the levels and effects of employer (client) identification on the control evaluations of internal (external) auditors. First, we find that internal auditors perceive a greater level of identification with the evaluated firm than do external auditors. We also find some evidence that, ceteris paribus, internal auditors are less lenient than external auditors when evaluating internal control deficiencies (i.e., tend to support management's preferred position to a lesser extent). Further, while we support Bamber and Iyer's (2007) results by finding that higher levels of external auditor client identification are associated with more lenient control evaluations, we demonstrate an opposite effect for internal auditors—higher levels of internal auditor employer identification are associated with less lenient control evaluations. Our results are important because we are the first to capture the relative levels of identification between internal and external auditors, as well as the first to compare directly internal and external auditor leniency, both of which are important in light of AS5. That is, we provide initial evidence that external auditors' increased reliance on internal auditors' work, while increasing audit efficiency, also could improve audit quality by resulting in less lenient internal control evaluations, due, at least in part, to the effects of employer and client identification. Data Availability: Contact the first author.

An Understanding of the Differences between Internal and External Auditors in Obtaining Information about Internal Control Weaknesses

2016 ◽  
Vol 28 (3) ◽  
pp. 83-99 ◽  
Author(s):  
Ian Burt
Keyword(s):  
Internal Control ◽  
Audit Quality ◽  
Audit Fees ◽  
Relevant Information ◽  
Internal Auditor ◽  
Internal Auditors ◽  
External Auditors ◽  
Organizational Silence ◽  
Internal Control Weaknesses ◽  
External Auditor

ABSTRACT The Institute of Internal Auditors (IIA) argues that internal auditors often have a strong “employee” identity within their organization. While external auditors are concerned that this employee identity might negatively impact internal auditors' objectivity, the IIA argues this identity can actually be beneficial as employees may be more willing to share sensitive and audit-relevant information with the internal auditor than they would with the external auditor. Through an experiment relying on the social identity and organizational silence literatures, I test the prediction that non-audit employees will identify more highly with the internal than the external auditor and they will thus, be willing to share more information about internal control weaknesses with the internal than the external auditor. The results from a moderated mediation analysis support this prediction and also show the effect is stronger as the severity of the internal control weakness increases. Overall, this research informs external auditors and regulators about conditions under which the internal auditor may have an advantage over the external auditor in obtaining information that could help improve audit quality. It also informs managers about an important role played by their internal auditors that may result in increased quality of the internal control system while also potentially lowering audit fees.

scholarly journals PENGARUH KOMPETENSI DAN PROFESIONALISME AUDITOR INTERNAL TEHADAP KINERJA KARYAWAN DENGAN INTERNAR KONTROL SEBAGAI VARIABEL INTERVENING

2019 ◽  
Vol 22 (1) ◽  
pp. 161-173
Author(s):  
Muh. Akob ◽  
Ansir Launtu ◽  
Irwan AS
Keyword(s):  
Regression Analysis ◽  
Internal Control ◽  
Employee Performance ◽  
Significant Positive Effect ◽  
Validity And Reliability ◽  
Test Analysis ◽  
Internal Auditor ◽  
Internal Auditors ◽  
Linearity Test ◽  
Positive Effect

This study aims to determine the effect of competence and professionalism of internal auditors on the performance of Employees with Internal Control as Intervening Variables. The research sample consisted of 96 Kalla Group employees who were directly involved in the finance department. The questionnaire was tested for validity and reliability test before research. The analysis prerequisite tests used were normality test, linearity test, mulitikolonieritas test and heteroscedasticity test. Analysis of the data used is simple regression analysis and multiple regression analysis. The results showed (1) There was a significant positive effect on internal auditor competency on employee performance; (2) There is a significant positive effect of internal auditor professionalism on performance; (3) There is a significant positive effect of internal control on employee performance (4) There is a significant positive effect on internal auditor competence on internal control; (5) There is a significant positive effect on the professionalism of internal auditors on internal control; (6) There is a significant positive effect of internal auditor competence on employee performance through Internal control as an intervening variable; (7) There is a significant positive effect of internal auditor professionalism on employee performance through Internal Control as an Intervening variable.

scholarly journals The Effects of Interaction between Internal Auditor and Audit Committee on Fraud Detection in Malaysia

2018 ◽  
Vol 7 (4.38) ◽  
pp. 1338
Author(s):  
Sunita Lylia Hamdan ◽  
Nahariah Jaffar ◽  
Ruzanna Ab Razak
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Specific Interaction ◽  
Fraud Detection ◽  
Internal Audit ◽  
Internal Auditing ◽  
Internal Auditor ◽  
Internal Auditors ◽  
External Auditors

This study aims to examine the effect of interaction between internal auditor and audit committee on fraud detection in Malaysia.  Specific interaction is firstly; audit committee approving the appointment of chief audit executive, the evaluation of chief audit executive, the dismissal of chief audit executive, the internal audit budget and the internal audit plan or program.  Secondly, audit committee’s involvement in reviewing internal auditor’s work specifically; providing input for the internal audit plan, reviewing the results of internal auditing related to financial reporting, reviewing the results of internal auditing related to internal control, reviewing the results of internal auditing related to compliance with laws and regulation, reviewing the internal audit involvement in management responses to internal audit suggestions, reviewing the difficulties or scope restrictions encountered by internal auditors and reviewing the coordination between internal auditors and external auditors.  Survey questionnaires were mailed to internal auditors attached to 782 companies listed on Bursa Malaysia’s main market. The results of this study suggest that involvement of audit committee in approving chief audit executives’ matters is insignificant on internal auditors’ contribution to fraud detection.  However, audit committee’s involvement in reviewing internal auditors’ work significantly influence the internal auditors’ contribution in fraud detection.       

Does disclosure of internal control system of credit risk improve banks’ performance? Evidence from Tunisian listed banks

2019 ◽  
Vol 06 (04) ◽  
pp. 1950031
Author(s):  
Moufida Ben Saâda ◽  
Yosra Gafsi
Keyword(s):  
Content Analysis ◽  
Control System ◽  
Credit Risk ◽  
Internal Control ◽  
Audit Committee ◽  
Internal Auditor ◽  
Internal Auditors ◽  
External Auditors ◽  
Internal Control System ◽  
Risk Committee

This paper proposes a measure of disclosure of internal control of credit risk and explores the extent to which this disclosure improves the performance of Tunisian listed banks. We use a self-constructed disclosure index from content analysis. From regressing panel data applied on a sample of 11 listed Tunisian banks during the period from 2007 to 2017, we find that disclosure of Internal Control System of Credit Risk (DICSCR) improves the performance of banks through the implementation of methods and procedures for controlling credit risk. Moreover, the results show that the interactions between DICSCR and the audit committee, the risk committee, and the internal auditor enhance the performance of the banks. Constructing a measure of disclosure inherent to the internal control system of credit risk allows investors and depositors to make relevant decisions, leads to better understanding the level of risk when controlling the bank by internal auditors and external auditors as well. It provides the Central Bank with a useful tool for evaluating the credit risk of the banks.

scholarly journals Pengaruh Auditor Internal, Auditor Eksternal Dan Dewan Perwakilan Rakyat Daerah Terhadap Good Governance (Survei pada Kabupaten/Kota di Wilayah II Provinsi Jawa Barat)

2020 ◽  
Vol 16 (2) ◽  
pp. 52-60
Author(s):  
Devi Astriani ◽  
Lilis Lasmini ◽  
Sari Marliani
Keyword(s):  
House Of Representatives ◽  
Good Governance ◽  
Factual Information ◽  
Internal Auditor ◽  
Internal Auditors ◽  
External Auditors ◽  
External Auditor ◽  
The Relationship ◽  
Region Ii ◽  
Positive Effect

This study aims to examine: the effect of Internal Auditors, External Auditors and Regional House of Representatives on Good Governance in Regencies / Cities in Region II of West Java Province. Based on its purpose, this research is a verification study, namely research that seeks to test the answer to a temporary problem (hypothesis) based on a particular theory. The research method used was an  explanatory survey, namely research using populations to explain the relationship between variables in the population. This study is intended to look for facts and factual information collected from respondents using a questionnaire given to the Inspectorate as an Internal Auditor, the Supreme Audit Board (BPK) as an External Auditor and Members of the Regional People's Representative Council in Regencies / Cities in Region II of Java Province West. Based on the results of the study it was found that the Internal Auditor, External Auditor and Regional House of Representatives had a positive effect on Good governance, simultaneously and partially.

External Auditors' Involvement in the Internal Audit Function's Work Plan and Subsequent Reliance Before and After a Negative Audit Discovery

2016 ◽  
Vol 35 (4) ◽  
pp. 159-173 ◽  
Author(s):  
Byron J. Pike ◽  
Lawrence Chui ◽  
Kasey A. Martin ◽  
Renee M. Olvera
Keyword(s):  
Internal Control ◽  
Internal Audit ◽  
Internal Controls ◽  
Professional Standards ◽  
Data Availability ◽  
Internal Auditors ◽  
External Auditors ◽  
Internal Audit Function ◽  
Anchoring Bias ◽  
Before And After

SUMMARY To reduce redundancies and increase efficiency in the evaluation of internal controls (PCAOB 2007, 402–403), professional standards encourage coordination between external auditors and their clients' internal audit function (IAF). Recent surveys of internal auditors find that a component of this coordination is external auditors' involvement in developing the IAF's audit plans. Nevertheless, it is not known how such involvement affects external auditors' reliance on the internal control test work of the IAF, either before or after a negative audit discovery. Based on an experiment with 107 experienced auditors, we find that external auditors involved in the development of the IAF's audit plan perceive the IAF as more objective and that both objectivity and involvement contribute to these auditors' placing more reliance on the IAF as compared to external auditors with no involvement. This initial reliance results in the involved auditors' proposing reductions to the audit budget and re-performing less of the IAF's work. Consistent with an anchoring bias, we find that involvement leads to external auditors' continuing to place greater reliance on the IAF's work, even after they become aware of a negative audit discovery that should not have occurred had the client's controls been effective. Data Availability: Data are available from the authors on request.

The Role of Accounting Mechanisms for Corporate Governance in Reducing Creative Accounting Practices in Telecommunications Sector Companies in Riyadh City: An Empirical Study: دور الآليات المحاسبية لحوكمة الشركات في الحد من ممارسات المحاسبة الإبداعية في شركات قطاع الاتصالات بمدينة الرياض: دراسة ميدانية

2020 ◽  
Vol 4 (15) ◽  
Author(s):  
Lamis Jameel Banasser, Maha Faisal Alsayegh
Keyword(s):  
Corporate Governance ◽  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Internal Auditors ◽  
External Auditors ◽  
Riyadh City ◽  
Creative Accounting ◽  
Telecommunications Sector

The study aimed to identify the role of accounting mechanisms for corporate governance in reducing creative accounting practices in telecommunications sector companies in Riyadh city. A descriptive analytical approach was followed to conduct the field study. Sample of the study consisted of members of the audit committee, internal auditors, accountants from the surveyed telecommunications’ sector companies, and the external auditors in the audit offices that specialized on auditing the examined sample of companies. Questionnaire was used as a data collection method. Results showed that activating the role of accounting mechanisms for corporate governance can greatly contribute in limiting creative accounting practices. As they are controlling mechanisms that capable of protecting companies, shareholders and stakeholders from any manipulation or misleading information in the financial statements. Further, internal audit plays a major role in limiting creative accounting practices by examining and evaluating the effectiveness of the internal control system. Furthermore, the independence and competence of the external auditor and his commitment to the rules of conduct and ethics of the profession contribute greatly in limiting creative accounting practices in the examined companies. The study recommended the necessity of holding specialized training courses for members of audit committees, internal auditors and external auditors on methods of detecting creative accounting practices to combat and reduce them.

scholarly journals The Determinants of the Effectiveness of Internal Audits with Management Support as the Moderating Variable

2019 ◽  
Author(s):  
hendra poltak
Keyword(s):  
Analysis Tool ◽  
Management Support ◽  
Questionnaire Data ◽  
Organizational Goals ◽  
Internal Auditors ◽  
External Auditors ◽  
Pls Analysis ◽  
And Performance ◽  
The Relationship ◽  
Positive Effect

Weak financial accountability reflects the lack of effectiveness of internal audits. The purpose of this research was to test and provide the evidence of the determinants of the effectiveness of internal audits at the Ministry of Marine Affairs and Fisheries (KKP). The samples of this research were 31 internal auditors and 31 KKP employees. This research was explanatory research. To test the hypotheses, the data of the research questionnaire data were analysed using Partial Least Squares (PLS) analysis tool. The results show that the relationship between internal auditors and external auditors, organizational independence, and auditee perceptions positively influences the effectiveness of internal audits. However, audit professionalism does not have a positive effect towards the effectiveness of internal audits and the management support cannot be a moderating variable. This finding can open the horizons of interested parties, especially KKP leaders, to consider policies that can improve the effectiveness of internal audits to improve organizational goals and performance.

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