Factors associated with the internal audit function’s role in corporate governance

6 Apr

2012 Factors_Associated

Corporate governance gained much attention in recent years due to the scandalous frauds of the early 2000s. Given this background, it is curious as to why CBOK (2006) indicates that some 41.7 percent of the Internal Audit Functions (IAFs) do not play an active role in corporate governance. CBOK (2006) also indicates that only 6.5 percent of the IAFs’ working time is allocated to governance issues.

This paper wants to provide guidance on strengthening the role of IAFs in corporate governance. We use responses from 782 US CAEs in the CBOK (2006) database for our investigation. Using a binary questioning mode in CBOK (2006) the CAEs indicated whether their IAFs had an active role in their firm’s corporate governance. We find that IAFs that are perceived to have active roles in corporate governance are significantly and positively associated with the use of a risk-based audit plan, an existence of a quality assurance and improvement program (QAIP) and input to the audit plan from the audit committee. In our multivariate analysis we find that a number of control variables (e.g. exchange listing, firm size, CAE certification) are also significantly associated with the IAF’s active role in corporate governance.

Our results have implications for CAEs who wish to increase their IAF’s role in corporate governance by providing services that are better aligned with the needs of their clients, such as the audit committee.

Sarens, Gerrit, Abdolmohammadi, Mohammad J., and Lenz, Rainer (2012), Factors Associated with the Internal Audit Function’s Role in Corporate Governance, Journal of Applied Accounting Research, Vol. 13 No. 2, pp. 191 – 204

http://www.emeraldinsight.com/doi/abs/10.1108/09675421211254876

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