Impacts of Information Sharing and Communication between the Internal Audit Function and the Audit Committee on Internal Audit Effectiveness

• In Event: Accounting, Behavior, and Organizations: Auditing

Abstract

The Internal Audit Function (IAF) and the Audit Committee (AC) are the two primary agents of the internal audit. Their roles are interdependent, and their interactions crucial for an effective internal audit. Principle 14 of the Information and Communication component of Internal Control presented by the United States Committee of Sponsoring Organizations of the Treadway Commission recommends systematizing reporting by establishing a direct line to the AC and ensuring joint review to assure the independence of the IAFs and to facilitate interactions between these two key agents (COSO 2013). In this study, we investigate how the recommended communication structures associated with independence and competence of the IAF, such as the quality of the IAF human resource, direct line of reporting, and joint review, enhance internal audit effectiveness. The joint review is found to be most effective in improving internal audit effectiveness, whereas reporting lines have a slightly negative impact on internal audit effectiveness. The quality of IAF human resource has a marginal effect on internal audit effectiveness. Our additional analysis suggests more fine-tuned applications of the COSO Principle 14 recommendations are in demand. This study has implications for practicing auditors and academics, especially those interested in qualitative improvement of the internal audit process and internal audit engagement.

Authors

• Moon-Kyung Cho, Texas A&M International University

• Yusun Jung, Texas A&M University-Texarkana