The Effect of Family Firms and Management Training Grounds on Internal Auditor Objectivity and External Auditors’ Reliance Judgment

• In Event: Interaction between Auditor and Client

Abstract

Prior research has largely neglected to examine the influence of family firms on auditors’ judgments and decision making, in particular when the internal audit function (IAF) is used for management training ground (MTG). This is the first study that gains insights into the effects of family firm and MTG on internal auditors’ objectivity and external auditors’ reliance decision through two separate studies. In the first study, we employ a naturalistic experiment with internal auditors who actually work at family firms and the IAF used for MTG. In the second study, we use a controlled laboratory experiment with external auditors manipulating the family firm and MTG conditions. Our results reveal that the family firm ownership context mitigates the detrimental effect of MTG on internal auditors’ objectivity and provide support for the stewardship theory of family firms. Additional results suggest that external auditors’ reliance decision are influenced by the MTG on IAF but fail to fully comprehend the impact of a family firm structure on the objectivity of internal auditors.

Authors

• Ikseon Suh, Marquette University

• Adi Masli, University of Kansas

• John T Sweeney, University of Kansas