Critical Analysis of Internal Audit Independence: International Literature
Abstract
This article provides an analysis of internal auditor independence framework by proposing and comparing the thesis of independence as a social construct and its antithesis as a myth. Extensive reviews of empirical research allow us to evaluate the key levers of audit committees, and the conditions of effectiveness of these bodies. Independence of the internal auditor is described as essential to sit his assessments. However, his position as an employee, with a subordination agreement with an employer, may affect his own judgment. Such a conflict threatens the independence of the internal auditor through its programming independence, investigation and / or reports. An "optimal" level of independence is built. It is clear that an independent audit committee, accessible and / or competent often contributes to the preservation of the independence of the internal auditor. The ambiguity of roles between assurance and consulting, not recognized as such by internal auditors may impair independence. The limitations and possible extensions of this line of research are discussed.
This article provides an analysis of internal auditor independence framework by proposing and comparing the thesis of independence as a social construct and its antithesis as a myth. Extensive reviews of empirical research allow us to evaluate the key levers of audit committees, and the conditions of effectiveness of these bodies. Independence of the internal auditor is described as essential to sit his assessments. However, his position as an employee, with a subordination agreement with an employer, may affect his own judgment. Such a conflict threatens the independence of the internal auditor through its programming independence, investigation and / or reports. An "optimal" level of independence is built. It is clear that an independent audit committee, accessible and / or competent often contributes to the preservation of the independence of the internal auditor. The ambiguity of roles between assurance and consulting, not recognized as such by internal auditors may impair independence. The limitations and possible extensions of this line of research are discussed.
Keywords
Full Text:
PDFReferences
Allegrini, M. and E. Bandettini. (2006), Internal auditing and consulting assignments in Italy, an empirical research , Paper presented at the Fourth European Conference on Internal Audit and Corporate Governance.
Allegrini, M., G. DOnza, L. Paape, R. Melville and G. Sarens. (2006), The european literature review on internal auditing , Managerial Auditing Journal. 21(8): 845-853.
Bariff, M. (2003), Internal Audit Independence and Corporate Governance, Altamonte Springs, FL: Institute of Internal Auditors Research Foundation.
Bdard, J., Gonthier-Besacier, N. and Richard, C. (2001), Quelques voies de recherche franaises en audit , in Faire de la recherche en comptabilit financire, Vuibert, Paris.
Bertin, E. and Godowski, C. (2010), Interactions entre les acteurs du processus global daudit et gouvernance de lentreprise : une tude exploratoire , in Crise et nouvelles problmatiques de la valeur, AFC, Nice.
Brody, R. G. and Lowe, D. J. (2000), The new role of the internal auditor: Implications for internal auditor objectivity , International Journal of Auditing, Vol. 4 No. 2, pp. 169-176.
Burnaby, P.A., Abdolmohammadi, M., Hass, S., Melville, R., Allegrini M., DOnza, G., Paape L., Sarens, G., Marais, M., Sadler, E., Fourie, H., Cooper B. and Leung, P. (2007), A Global Summary of the Common Body of Knowledge 2006, The Institute of Internal Auditors Research Foundation, Altamonte Springs, FL.
Carcello, J. and T. L. Neal. (2000), Audit committee characteristics and auditor reporting. The Accounting Review 75 _4_: 453467.
Charreaux G. (2002), Variation sur le thme : A la recherche de nouvelles fondations pour la finance et la gouvernance dentreprise Finance Contrle Stratgie, vol.5, n3, pp. 5-68.
Charreaux G. d. (1997) Le gouvernement des entreprises, Thories et faits, Economica, Paris.
Christopher, J., Sarens, G. and Leung, P. (2009), A critical analysis of the independence of the internal audit function: evidence from Australia, Accounting, Auditing & Accountability Journal, Vol. 22 n2.
Clarkson M. B. (1995) A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance , Academy of Management Review, 20 (1), p. 92-117.
Desai, V., Roberts, R. W. and Srivastava. R. (2010) An Analytical Model for External Auditor Evaluation of the Internal Audit Function Using Belief Functions , Contemporary Accounting Research, Vol. 27 No. 2
Drent, D. (2002) The quest for increased relevance, Internal Auditor , 59(1): 49-55.
Fama, E., and M. Jensen. (1983), Separation of ownership and control , Journal of Law and Economics, 26: 301-325.
Goodwin, J. and Yeo, T.Y. (2001), Two factors affecting internal audit independence and objectivity: evidence from Singapore, International Journal of Auditing, Vol. 5 No. 2, pp. 107-25.
Goodwin, J. (2003), The relationship between the audit committee and the internal audit function: evidence from Australia and New Zealand , International Journal of Auditing, Vol. 7, pp. 263-278.
Gramling, A. A., Maletta, M. J., Schneider A. and Church, B. K. (2004), Role of the internal audit function in Corporate Governance: A Synthesis of the Extant Internal Auditing Literature and Directions for Future Research , The journal of Accounting Literature.
Gwilliam, D. and Kilcommins, M. (1998), The Impact of Audit Firm Size and Audit Committee on Perceptions of Auditor Independence and Financial Statement Reliability in Ireland , The Irish Accounting Review, 5, 23-56.
Institute of Internal Auditors (IIA). (2001), Independence and Objectivity: A Framework for Internal Auditors, The Institute of Internal Auditors: Altamonte Springs, FL.
Institute of Internal Auditors (IIA). (2004), Standards for the Professional Practice of Internal Auditing. http://theiia.org: Global Practices Center, Professional Practices Group.
Institute of Internal Auditors (IIA). 2010, International Standards for the Professional Practice of Internal Auditing (Standards). Altamonte Springs, FL: The Institute of Internal Auditors.
Jackson, S. E. & Schuler, R. S., (1985), A Meta-analysis and Conceptual Critique of Research on Role Ambiguity and Role Conflict in World Settings , Organizational Behavior and Human Decision Processes, pp. 16-78.
James, K. (2003), The effects of internal audit structure on perceived financial statement fraud prevention , Accounting Horizons, Vol. 17 No. 4, pp. 315-327.
Jayanthi Krishnan. (2005), Audit Committee Quality and Internal Control: An Empirical Analysis . The Accounting Review: April, Vol. 80, No. 2, pp. 649-675.
Joseph V. Carcello, Dana R. Hermanson, and Terry L. Neal. (2002), Disclosures in Audit Committee Charters and Reports , Accounting Horizons: December 2002, Vol. 16, No. 4, pp. 291-304.
Karla M. Johnstone and Jean C. Bedard. (2001), Engagement Planning, Bid Pricing, and Client Response in the Market for Initial Attest Engagements . The Accounting Review: April, Vol. 76, No. 2, pp. 199-220.
Krishnan, J. (2005), Audit committee quality and internal control: An empirical analysis . The Accounting Review 80 _2_: 649675.
Mautz, R., & Sharaf, H. (1961), The PbiIosophyof auditing. Sarasota, FL: American Accounting Association.
McHugh, J. & Raghunandan, K. (1994), Hiring and firing the chief internal auditor , Internal Auditor, Vol. 51, No. 4, pp. 3439.
Paape, L., J. Scheffe and P. Snoep. (2003), The relationship between the internal audit function and corporate governance in the EU a survey , International Journal of Auditing 7: 247-262.
Paape, L. 2007. Corporate governance: The impact on the role, position, and scope of services of the internal audit function. Unpublished PhD dissertation. Erasmus Research Institute of Management. Erasmus University, Netherlands.
Parrat, F. (1999), Le gouvernement dentreprise ce qui achang, ce qui va encore volu, MAXIMA.
Pig, B. (2011), Qualit de laudit Enjeux de laudit interne et externe, DeBoeck.
Piot, C. and Kermiche, L. (2009), A quoi servent les comits daudit ? Un regard sur la recherche empirique , Comptabilit Contrle Audit, Tome 15, numro spcial, dcembre.
Prat Dit Hauret, C. (2002), Lindpendance du commissaire aux comptes, une analyse empirique base sur les composantes psychologiques du comportement . AFC.
Raghunandan, K., Read, W.J. and Rama, D.V. (2001), Audit committee composition, gray directors, and interaction with internal auditing , Accounting Horizons, Vol. 15 No. 2, pp. 105-118.
Rittenberg, L. E. and Schwieger B. J. (2005), Auditing: Concepts for a Changing Environment, Pittenberg - Schwieger, USA.
Sarens, G. And I. de Beelde. (2006), The relationship between internal audit and senior management: A qualitative analysis of expectations and perceptions. International Journal of Auditing 10: 219-241.
Sarens, G., De Beelde, I. and Everaert, P. 2009. Internal audit: A comfort provider to the audit committee , British Accounting Review, Vol. 41, n 2, 90 106.
Schneider, A. (1985). The reliance of external auditors on the internal audit function . Journal of Accounting Research, 23 , 911-919.
Schneider, A. & Wilner, N. (1990), A test of audit deterrent to financial reporting irregularities using the randomized response technique , The Accounting Review, Vol. 65, No. 3, pp. 66881.
Schneider, A. (2003), An examination of whether incentive compensation and stock ownership affect internal auditor objectivity , Journal of Management Issues 15 (4): 486-497.
Schneider, A. (2010), Determining whether there are any effects on Incentive Compensation and Stock Ownership on Internal Audit Procedures , International Journal of Auditing, 14, p. 101-110.
Stewart, J. and Subramaniam, N. 2010, Internal audit independence and objectivity : emerging research opportunities , Managerial Auditing Journal, 25(4) : 328-360.
Turley, S and Zaman, M. (2007), Audit Committee effectiveness: informal processes and behavioural effects , Accounting, Auditing & Accountability Journal, Vol. 20 No. 5, pp. 765-788.
Van Peursem, K. (2004), Internal auditors role and authority: New Zealand evidence , Managerial Auditing Journal, 19(3) : 378-393.
Van Peursem, K. (2005), Conversations with internal auditors: the power of ambiguity , Managerial Auditing Journal, Vol. 20 No. 5, pp. 489-512.
Wright, M. K. and Charles, J. 2012, Auditor independence and internal information systems audit quality , Business Studies Journal, Volume 4, Special Issue, Number 2, p. 63-83.
Refbacks
- There are currently no refbacks.
Copyright© 2015 Journal of Research in Business, Economics and Management. All rights reserved.
ISSN 2395-2210
For any help/support contact us at editorial@scitecresearch.com, jrbem@scitecresearch.com.