Dean s research seminar november 10 2006
This presentation is the property of its rightful owner.
Sponsored Links
1 / 31

Dean’s Research Seminar November 10, 2006 PowerPoint PPT Presentation


  • 166 Views
  • Uploaded on
  • Presentation posted in: General

DETERMINANTS OF INTERNAL AUDIT FUNCTION PERFORMANCE By Dr. Douglas E. Ziegenfuss* Old Dominion University Dr. Patricia M. Myers Brock University Dr. Wayne K. Talley, Old Dominion University. Dean’s Research Seminar November 10, 2006. Synopsis.

Download Presentation

Dean’s Research Seminar November 10, 2006

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Dean s research seminar november 10 2006

DETERMINANTS OF INTERNAL AUDIT FUNCTION PERFORMANCEByDr. Douglas E. Ziegenfuss*Old Dominion UniversityDr. Patricia M. Myers Brock University Dr. Wayne K. Talley, Old Dominion University

Dean’s Research Seminar

November 10, 2006


Synopsis

Synopsis

  • This study examines the relationship between Internal Audit Function (IAF) and the following independent variables:

  • IAF relative size,

  • IAF resources,

  • IAF staff quality,

  • IAF quality assessment review completion,

  • audit committee effectiveness,

  • Chief Audit Executive (CAE) reporting relationships,

  • IAF interaction with external auditors,

  • reporting year, and

  • organization demographic variables such as industry and headquarter country.


Why is this research important

Why Is This Research Important?

  • Sarbanes-Oxley Act Section 404 requires CEO and CFO to attest to the adequacy of their organization’s internal control system.

  • In most cases, Executives are relying on IAFs to fulfill this responsibility.

  • Government entities have a similar responsibility under Generally Accepted Government Auditing Standards (Yellow Book).

  • The organization’s external auditors must perform an attestation engagement affirming that the organization’s internal control system is adequate.

  • The organization’s external auditor cannot assist the Executive because the assistance would violate their independence.


What is internal auditing

What is Internal Auditing

  • Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations.  It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.


Internal auditing

Internal Auditing

  • Usually located within an organization but may be outsourced.

  • BIG 4 and other outsourcers are biggest sponsors of the IIA’s annual conference.

  • Internal Auditing is considered the fourth leg of an organization’s four legged governance structure:

    • Audit Committee of Board of Directors

    • External Auditor

    • Internal Auditor

    • Management

  • Internal Auditing has been “Hot” for he past 4 years.

  • Not only in the US but also globally.

  • Membership in the IIA has gone from 60,000 in 2000 to 115,000 in 2006.

  • Careers have taken off spectacularly!


Internal audit research

Internal Audit Research

  • The Institute of Internal Auditors Research Foundation (IIARF) and Academic Relations Committee (ARC).

  • Tries to entice Universities and Colleges to adopt internal auditing into their curriculums

  • Promotes academic research into Internal Auditing topics through grants.

  • For instance, IIARF will fund Doctoral Dissertations for $10,000 dealing with internal audit.


Research opportunities in internal auditing roia

Research Opportunities in Internal Auditing (ROIA)

  • Edited by Andrew Bailey, Audrey Gramling, and Sridhar Ramamorti.

  • Leading auditing scholars authored chapters in ROIA dealing with issues affecting IAFs such as corporate governance, IAF management, risk assessment, etc.,

  • Each author presented previous literature and then posed questions for future researchers.

  • Prawitt (2003) and Lemon and Tatum (2003) wrote chapters especially relevant to this study.


Iaf performance studies

IAF Performance Studies

  • Lampe and Sutton (1994) developed a method for IAFs to establish quality measuring systems.

  • Gupta and Ray (1992) investigated the role that IAFs could take in their organization’s total quality improvement process. Finally, Frigo (2002) demonstrated how IAFs could implement a balanced scorecard framework to measure their performance.

  • Ziegenfuss (1998):

    • (1) reviewed the Global Internal Auditing Network (GAIN);

    • (2) identified seventy-two potential performance measures that IAFs could use;

    • (3) conducted a survey of CAEs to identify those performance measures actually used; and

    • (4) developed an index to measure IAF performance.

  • Ziegenfuss (2000a) also proposed an IAF balanced scorecard and (2000b) published the results of the CAE survey.


Iaf performance studies continued

IAF Performance Studies(Continued)

  • Applegate, (1997) described the non-traditional performance measurement process at the Boeing Aircraft Corporation.

  • Beeler, (1999) examine the factors associated with internal auditor promotion probabilities.

  • Williams (2000) identify the efficiencies associated with value-added auditing.

  • Reding (2000) benchmark the Allstate Insurance Company’s IAF against the IIARF’s Competency Framework for Internal Auditing study.

  • Brierley (2001) study the factors that prevented the establishment of an IAF in the Sudanese public sector.

  • Nash and Flesher (2001) sampled the middle 400 companies from the Fortune 1000 to identify performance measures currently being used by IAFs.


Iaf performance studies continued1

IAF Performance Studies(Continued)

  • Felix (2001) research the contribution of internal audit as a determinant of external audit fees and the factors that influenced this contribution.

  • Lampe and Garcia (2003) present the current state of professionalism among internal auditors.

  • Moeller (2004) describes how to manage an IAF after SOX.

  • Carcello (2005a) investigate the factors associated with U.S. public companies’ investment in internal auditing.

  • Carcello (2005b) study the changes in IAF during the time of the major U.S. accounting scandals.

  • Rittenberg and Anderson (2006) discuss hiring and inspiring a CAE.


What is lacking

What is lacking?

  • An exploratory study to determine what factors influence IAF performance.


Research question

Research Question

  • We propose that IAF-PERFORMANCE varies with

  • inputs IAF-INPUTS,

  • organizational governance ACCHARTER and ACCOUNTABLE,

  • IAF reporting arrangements with management ADREPORT AND FUNREPORT,

  • IAF-Board reporting arrangements QUALCOMM and FREQUENCY,

  • IAF relationship with its organization’s external auditor COORDINATION,

  • organizational characteristics, such as industry PIC, headquarters country USA, and GAIN reporting year RYEAR i.e.,


Research question continued

Research Question(Continued)

  • IAF-PERFORMANCE =

  • f (IAF-INPUTS, ACCHARTER, ACCOUNTABLE, ADREPORT, FUNREPORT, QUALCOMM, FREQUENCY, COORDINATION, PIC, USA, REPORTING YEAR)(1)


Variable definition and measurements

Variable Definition and Measurements


Global auditing information network gain

Global Auditing Information Network (GAIN)

  • SAMPLE SELECTION

  • The IIA began GAIN in the mid-1990s as a benchmarking tool for CAEs.

  • Initially, few IAFs participated in GAIN due to several factors:

    • (1) CAEs were unfamiliar with it,

    • (2) the paper and pen format of the early years was inconvenient to complete, and

    • (3) GAIN’s high annual fee.

  • However in 1999, GAIN became internet based and the IIA dramatically reduced the annual fee.

  • Participation greatly increased from 438 respondents in 1998 to 747 in 2003.

  • We selected 168 IAFs who responded in each of the five years being studied.


Table 2 regression results r eport time as dependent variable

TABLE 2: REGRESSION RESULTS (Report-Time as dependent variable)

Ordinary Least Squares Regression

Model test: F[ 14, 625] = 9.61, Prob value = .0000 Fit:R-squared = .177,Adjusted R-squared = .159

* = significant at the .10 level ** = significant at the .05 level *** = significant at the .01 level


Table 3 probit analysis results addvalue as dependent variable

TABLE 3: PROBIT ANALYSIS RESULTS (Addvalue as dependent variable)

Ordered Probit Model

Iterations completed: 13 Log likelihood function: -449.3665 Restricted log likelihood: -472.0351 Chi-squared: 45.33711

Degrees of freedom: 7 Significance level: .0000 Cell frequencies for outcomes:

Panel B: Ordered Probit Model

* = significant at the .10 level ** = significant at the .05 level *** = significant at the .01 level


Table 4 probit analysis results reportqual as dependent variable

TABLE 4: PROBIT ANALYSIS RESULTS (ReportQual as dependent variable)

Panel A: Ordered Probit ModelSatistics

Iterations completed: 17 Log likelihood function: -412.9412 Restricted log likelihood: -443.1573 Chi-squared: 60.43224

Degrees of freedom: 10 Significance level: .0000 Cell frequencies for outcomes:

Panel B: Ordered Probit Model

* = significant at the .10 level ** = significant at the .05 level *** = significant at the .01 level


Table 5 tests of significance summary

TABLE 5: TESTS OF SIGNIFICANCE SUMMARY

* = significant at the .10 level ** = significant at the .05 level *** = significant at the .01 level


Table 5 tests of significance summary1

TABLE 5: TESTS OF SIGNIFICANCE SUMMARY

* = significant at the .10 level ** = significant at the .05 level *** = significant at the .01 level


Conclusions

Conclusions

We draw the following conclusions:

  • IAFs appear to be benchmarking their performance within the industry in which their organizations operate,

  • Administrative and to a less extend functional reporting arrangements appear to influence IAF audit performance,

  • Experience and professional certification seem to affect IAF performance particularly with respect to auditee ratings,

  • SOX did not have a significant influence on IAF performance,

  • Whether the organization was headquartered in the USA or elsewhere only marginally influenced IAF performance, and as did the employee to auditor ratio, and corporate governance.


  • Login