Internal Audit Quality: Insights from Audit Committees, Management and Internal Auditors

• In Event: Internal Control

Abstract

The quality of an internal audit function (IAF) is fundamental to corporate governance stakeholders in their decision to rely on information provided by the IAF. Despite this importance, very little is known about IAF quality beyond the viewpoint of a single governance stakeholder, the external auditor, or beyond the IAFs role in financial statement related activities. To broaden our understanding of IAF quality we conduct 36 interviews with four key IAF stakeholders including: audit committee members and chairs, senior management, heads of in-house IAFs, and partners of internal audit divisions from the major accounting firms. Based on a framework of IAF quality we develop, we analyze the insights from these IAF stakeholders to investigate what dimensions and information cues stakeholders weigh on most in their assessment of IAF quality, and secondly, other factors stakeholders consider important determinants to high IAF quality. Our findings show that each of the four IAF stakeholder groups weigh on different dimensions of the IAF quality framework in assessment of IAF quality and use a variety of information cues in this process, which indicates that IAF quality is contextual. We also find numerous factors that stakeholders consider important determinants to high IAF quality, indicating that IAF quality is more complex than currently considered in the internal audit literature.

Authors

• Andrew J. Trotman, Northeastern University

• Keith R. Duncan, Bond University