Internal Auditor Objectivity: The Effect of Reporting Line and Management Training Ground

• In Event: Auditor Judgment and Decision-Making

Abstract

This study investigates two factors that may affect the IAF's objectivity: (1) the IAFs reporting line (management v. audit committee) when performing a consulting engagement and (2) whether or not the IAF is used as a management training ground. Eighty-eight experienced internal auditors from the gaming industry completed a case where they were asked to evaluate a major gaming investment. The results show the following. First, the internal auditors' risk assessments showed an interaction effect between reporting line and MTG. When the IAF is not a MTG, internal auditors' risks assessments are not significantly different when the IAF reports to senior management versus the audit committee. However, when the IAF is a MTG, internal auditors' risk assessments are significantly lower when the IAF reports to senior management versus the audit committee. Second, our analyses of the internal auditors' recommendations show that the internal auditors provided higher recommendations to the audit committee than to management. Third, when the IAF is a MTG, the internal auditors provide higher recommendations for making the investment than when the IAF is not a MTG. Overall our results highlight the interplay between reporting lines and whether the IAF is being used as a MTG on internal auditors’ objectivity.

Authors

• Florian Hoos, HEC Paris

• William F Messier, University of Nevada, Las Vegas

• Jason L. Smith, University of Nevada, Las Vegas

• Paulette R Tandy, University of Nevada, Las Vegas