Determinants of Internal Audit Quality Post Sarbanes Oxley Act of 2002

• In Event: Continental Breakfast - Research and Education Forum
  In Roundtable Session: Table 3: Corporate Governance and Social Responsibility

Abstract

In this study we utilize responses from 386 chief audit executives (CAEs) of public companies located in Anglo-culture countries, to identify and test the determinants of internal audit quality (IAQ). We then use external quality assessment and improvement programs as an objective dependent variable in a regression where test variables are (1) internal quality assessment and improvement programs, (2) determinants of internal audit quality, (3) measures of internal audit performance, (4) audit committee involvement, and (5) internal audit function age. We test multiple other variables as control variables, including the six variables that U.S. and international standards have identified for the external auditors to consider when deciding on whether to rely on the work of internal auditors. We find strong statistical support for our five test variables, but not control variables, where only one of the SAS 65/128/IAS 610 determinants of IAQ, CIA certification of the CAE, is positively associated with our dependent variable, and only marginally.

We contribute to the literature in two distinct ways. First, we identify numerous input variables of IAQ and document which ones are significantly and positively associated with a proxy for overall IAQ. Second, we surprisingly find that of the six SAS 65/128/IAS 610variables used in prior research, only one is positive and significant and only marginally. These results suggest additional attention to the IAQ criteria in SAS 65/128/IAS610. Our results also suggest that richer sets of IAQ may be needed in the post SOX (2002) regulatory environment.

Authors

• Steven DeSimone, Bentley University

• Mohammad J. Abdolmohammadi, Bentley University