Internal Audit Functions’ Response to Risk: Evidence from the College Admissions Scandal

• In Event: Internal Audit and Audit Firm Quality Control

Abstract

Internal auditing standards require internal auditors to create risk-based audit plans to prioritize projects that mitigate critical risks. In this study, I investigate the factors that influence an internal audit function’s (IAF’s) response to reputational risk. Specifically, I examine whether internal audit organizational structure and internal audit size impact a university’s response to the admissions risk revealed by the college admissions scandal in 2019. I hypothesize and find that universities with centralized system IAFs are less likely to plan admissions audits after the scandal, and universities with decentralized campus IAFs are less likely to proactively manage the admissions risk before the scandal. Further, I find that the internal audit structure determines the size of an IAF. And the more internal auditors a university has, the more likely it will proactively manage the admissions risk.

Author

• Han Yan, Washington State University