Factors affecting the voluntary use of internal audit

Tags: Journal of Accounting and Public Policy, Managerial Auditing Journal, internal audit, Accounting Horizons, audit committee, Journal of Accounting Research 18, Contemporary Accounting Research, audit committees, internal audit services, Positive Accounting Theory, National Commission of Fraudulent Financial Reporting, A. Craswell, Attitude Measurement, Journal of Accounting and Economics, Journal of Applied Business Research, Corporate Law Economic Reform Program, audit risk, Accounting, J. Francis, external audit, Journal of Accounting Research, R. Simnett, D.R. Hermanson, external audit fee, D.V. Rama, New York, American Accounting Association, British Accounting Association, Factors Affecting, Jere Francis, Corporate Governance, University of Queensland, Queensland University of Technology, Internal Auditor, internal auditors, risk management, Blue Ribbon Committee, Accounting, Organizations and Society, Institute of Internal Auditors, internal auditing, Corporate Audit Committees, University of New South Wales, New York Stock Exchange, National Association of Securities Dealers, K. Raghunandan
Content: Working Paper No. 2004-001 Factors Affecting the Voluntary Use of Internal Audit Jenny Goodwin School of Accountancy Queensland University of Technology and Pamela Kent UQ Business School University of Queensland Acknowledgements: The authors acknowledge the helpful comments of Bruce Bennett, Peter Carey, Liz Carson, Allen Craswell, Jere Francis, Gerry Gallery, David Hay, Robert Knechel, Arnie Schneider, participants at seminars at the University of New South Wales, Unitec, Auckland and the Institute of Internal Auditors, Queensland, and at the Annual Conference of the British Accounting Association, Manchester, UK, 2003 and the Annual Meeting of the American Accounting Association, Hawaii, 2003. Funding from the University of Queensland is also gratefully acknowledged. October 2004
Factors Affecting the Voluntary Use of Internal Audit ABSTRACT The objective of this study is to explore the use of internal audit and to identify factors that lead listed companies to voluntarily use internal audit. Drawing on the Institute of Internal Auditors' definition of internal auditing, we develop hypotheses which predict that the use of internal audit is associated with factors that increase the need for risk management, strong internal controls and strong corporate governance. We test these hypotheses using data from a questionnaire survey combined with information from ANNUAL REPORTS. Our results indicate that only one third of our sample companies use internal audit. While size appears to be a dominant driver of internal audit use, we find a strong association between the level of commitment to risk management and the use/size of internal audit. We also find support for our prediction that internal audit is associated with strong corporate governance. Key Words: internal audit; internal controls; corporate governance; risk management 2
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