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Showing papers on "Audit published in 2006"


Journal ArticleDOI
TL;DR: In this article, the authors examine the robustness of the regime of targets and terror to these assumptions using evidence from the English public health service on reported successes, problems of measurement, and gaming.
Abstract: In the 2000s, governments in the UK, particularly in England, developed a system of governance of public services that combined targets with an element of terror This has obvious parallels with the Soviet regime, which was initially successful but then collapsed Assumptions underlying governance by targets represent synecdoche (taking a part to stand for a whole); and that problems of measurement and gaming do not matter We examine the robustness of the regime of targets and terror to these assumptions using evidence from the English public health service on reported successes, problems of measurement, and gaming Given this account, we consider the adequacy of current audit arrangements and ways of developing governance by targets in order to counter the problems we have identified

1,210 citations


Journal ArticleDOI
TL;DR: The authors evaluate and summarize the large body of audit fee research and use meta-analysis to test the combined effect of the most commonly used independent variables, such as loss by the client and leverage, which have become significant in comparatively recent studies.
Abstract: We evaluate and summarize the large body of audit fee research and use meta-analysis to test the combined effect of the most commonly used independent variables. The perspective provided by the meta-analysis allows us to reconsider the anomalies, mixed results, and gaps in audit fee research. We find that, although many independent variables have consistent results, several show no clear pattern to the results and others only show significant results in certain periods or particular countries. These variables include a loss by the client and leverage, which have become significant in comparatively recent studies; internal auditing and governance, both of which have mixed results; auditor specialization, regarding which there is still some uncertainty; and the audit opinion, which was a significant variable before 1990 but not in more recent studies.

1,005 citations


Journal ArticleDOI
TL;DR: In this article, the authors examined the relationship between audit quality and long audit partner tenure and found a lower propensity to issue a going-concern opinion and some evidence of just beating (missing) earnings benchmarks.
Abstract: Rotation of audit partners is one of the main policy initiatives that has been implemented in many jurisdictions around the world to deal with concerns about audit quality. The basis of any requirement limiting the tenure of audit partners is that there is a reduction in audit quality associated with long periods of tenure. Using data from Australia, where the audit partner can be identified and for a period where partner rotation was not mandatory, we examine the association between audit quality and long audit partner tenure. The three measures of audit quality examined are the auditor's propensity to issue a going‐concern audit opinion for distressed companies, the direction and amount of abnormal working capital accruals, and just beating (missing) earnings benchmarks. For long tenure observations we find a lower propensity to issue a going‐concern opinion and some evidence of just beating (missing) earnings benchmarks, consistent with deterioration in audit quality associated with long audit partner ...

824 citations


Journal ArticleDOI
TL;DR: This paper developed an economic model of greenwash, in which a firm strategically discloses environmental information and a non-governmental organization (NGO) may audit and penalize the firm for failing to fully disclose its environmental impacts.
Abstract: We develop an economic model of greenwash, in which a firm strategically discloses environmental information and a non-governmental organization (NGO) may audit and penalize the firm for failing to fully disclose its environmental impacts. We identify conditions under which NGO punishment of greenwash backfires, inducing the firm to become less rather than more forthcoming about its environmental performance. We show that complementarities with NGO auditing may justify public policies encouraging firms to adopt environmental management systems. Mandatory disclosure rules offer the potential for better performance than NGO auditing, but the necessary penalties may be so large as to be politically unpalatable. If so, a mix of mandatory disclosure rules, NGO auditing and environmental management systems may be needed to induce full environmental disclosure.

708 citations


Journal ArticleDOI
TL;DR: The authors used firms' disclosures of internal control problems prior to audits mandated by Section 404 of the Sarbanes-Oxley Act (SOX) to investigate the economic factors that expose firms to internal control failure risks and managements' incentives to discover and report internal control deficiencies (ICDs).
Abstract: This paper uses firms' disclosures of internal control problems prior to audits mandated by Section 404 of the Sarbanes-Oxley Act (SOX) to investigate the economic factors that expose firms to internal control failure risks and managements' incentives to discover and report internal control deficiencies (ICDs). We find that firms making pre-SOX 404 ICD disclosures typically have more complex operations, recent changes in organization structure, more accounting risk exposure, fewer resources to invest in internal control and higher incidence of auditor resignation relative to firms that do not report internal control problems. Regarding incentives to discover and report internal control problems, we find that ICD firms have more prior SEC enforcement actions and restatements of financial statements, are more likely to use a dominant audit firm, and are more likely to have concentrated institutional ownership. Our findings are important in developing expectations about determinants of internal control problems across all SEC registrants including non-accelerated filers that are not yet required to comply with SOX 404, as well as providing baseline evidence for evaluating the discovery and reporting of ICDs under mandated internal control audits.

696 citations


Journal ArticleDOI
TL;DR: In this paper, the authors argue that the institutions and sites where regulation takes place affect both the outcome of the regulatory process and the legitimacy of the rules and practices produced, and that changes in regulatory processes affect opportunities for democratic control and legitimacy.
Abstract: This review paper argues that the institutions and sites of professionalization projects and regulatory processes matter. The institutions and locations where regulation takes place affect both the outcome of the regulatory process and the legitimacy of the rules and practices produced. Changes in regulatory processes affect opportunities for democratic control and legitimacy. A common position in the accounting literature is to examine both the process of professionalization and accounting and audit regulation within and around professional associations and related organizations, such as standard setting bodies and regulatory agencies. We argue that professional firms are increasingly important in professionalization and regulatory processes and have not received the attention that they warrant: an examination of the multi-national professional service firms (currently known as the Big 4) can enhance an understanding of professionalization and professional regulation. We suggest that these are important sites where accounting practices are themselves standardized and regulated, where accounting rules and standards are translated into practice, where professional identities are mediated, formed and transformed, and where important conceptions of personal, professional and corporate governance and management are transmitted.

691 citations


Posted Content
TL;DR: In this paper, the authors investigate auditors' assessment of earnings manipulation risk and corporate governance risk and their planning and pricing decisions in the presence of these identified risks, and they find that auditors plan increased effort and billing rates for clients with earning manipulation risk, and that the positive relationships between earning manipulations and both effort and billings rates are greater for clients that also have heightened corporate governance risks.
Abstract: This paper investigates auditors' assessments of earnings manipulation risk and corporate governance risk, and their planning and pricing decisions in the presence of these identified risks. To conduct this investigation, we use engagement partners' assessments of their existing clients made during the participating public accounting firm's client continuance risk assessment process. We find that auditors plan increased effort and billing rates for clients with earning manipulation risk, and that the positive relationships between earning manipulation risk and both effort and billing rates are greater for clients that also have heightened corporate governance risk. These finding provide evidence that auditors assess situations involving both an aggressive management and inadequate corporate governance, and that there is a relationship between those assessments and auditors' planning and pricing decisions.

533 citations


Journal ArticleDOI
TL;DR: The Sarbanes-Oxley Act and Auditing Standard No. 2 (PCAOB 2004) require management and the auditor to report on internal controls over financial reporting as discussed by the authors.
Abstract: Section 404 of the Sarbanes‐Oxley Act and Auditing Standard No. 2 (PCAOB 2004) require management and the auditor to report on internal controls over financial reporting. Section 404 is arguably th...

425 citations



Journal ArticleDOI
TL;DR: In this paper, the authors examined whether the existence of an audit committee, audit committee characteristics and the use of internal audit are associated with higher external audit fees and found that higher audit fees imply increased audit testing and higher audit quality.
Abstract: This study examines whether the existence of an audit committee, audit committee characteristics and the use of internal audit are associated with higher external audit fees. Higher audit fees imply increased audit testing and higher audit quality. We find that the existence of an audit committee, more frequent committee meetings and increased use of internal audit are related to higher audit fees. The expertise of audit committee members is associated with higher audit fees when meeting frequency and independence are low. These findings are consistent with an increased demand for higher quality auditing by audit committees, and by firms that make greater use of internal audit.

389 citations


Journal ArticleDOI
TL;DR: In this article, the authors extend the literature on the role of political economy in financial reporting and auditing by testing two hypotheses: the first hypothesis predicts that there will be a greater increase in audit effort and audit fees for Malaysian firms with political connections, as a result of the Asian financial crisis, than for non-politically connected firms because these firms have a higher risk of financial misstatements.
Abstract: This paper extends the literature on the role of political economy in financial reporting and auditing by testing two hypotheses. The first hypothesis predicts that there will be a greater increase in audit effort and audit fees for Malaysian firms with political connections, as a result of the Asian financial crisis, than for non-politically connected firms because these firms have a higher risk of financial misstatements. The second hypothesis predicts that the audit fees of politically connected firms will decline when capital controls are introduced by the government as a ploy to financially assist politically connected firms to rebound from the crisis, and thus reduces the risk of financial misstatements. The results show that there is a greater increase in audit fees for firms with political connections than for non-politically connected firms as a result of the Asian financial crisis. However, there is a decline in audit fees for politically connected firms after the capital controls are implemented.

Journal ArticleDOI
TL;DR: In this paper, the impact of internal control quality on audit delay following the implementation of the Sarbanes-Oxley Act (2002) (SOX) is analyzed, and the authors find that the presence of material weakness in ICOFR is associated with longer delays.
Abstract: This study analyzes the impact of internal control quality on audit delay following the implementation of the Sarbanes‐Oxley Act (2002) (SOX). Unlike prior studies of audit delay that obtain information about internal control strength via surveys, or use fairly crude proxies for internal control quality, our study employs external auditor assessments of internal control over financial reporting (ICOFR) that are publicly disclosed in SEC 10‐K filings under SOX Section 404. Thus, the empirical evidence provided in this study is both timely and reliable (i.e., not subject to small sample bias or weak proxies). Consistent with our expectation, we find that the presence of material weakness in ICOFR is associated with longer delays. The types of material weakness also matter. Compared to specific material weakness, general material weakness is associated with longer delays. Additional analyses indicate that companies with control problems in personnel, process and procedure, segregation of duties, and closing ...

Journal ArticleDOI
TL;DR: How high performing facilities and low performing facilities differ in the way they use clinical audit data for feedback purposes is explored, finding facilities with a successful record of guideline adherence tend to deliver more timely, individualized and non-punitive feedback to providers about their adherence.
Abstract: As a strategy for improving clinical practice guideline (CPG) adherence, audit and feedback (A&F) has been found to be variably effective, yet A&F research has not investigated the impact of feedback characteristics on its effectiveness. This paper explores how high performing facilities (HPF) and low performing facilities (LPF) differ in the way they use clinical audit data for feedback purposes. Descriptive, qualitative, cross-sectional study of a purposeful sample of six Veterans Affairs Medical Centers (VAMCs) with high and low adherence to six CPGs, as measured by external chart review audits. One-hundred and two employees involved with outpatient CPG implementation across the six facilities participated in one-hour semi-structured interviews where they discussed strategies, facilitators and barriers to implementing CPGs. Interviews were analyzed using techniques from the grounded theory method. High performers provided timely, individualized, non-punitive feedback to providers, whereas low performers were more variable in their timeliness and non-punitiveness and relied on more standardized, facility-level reports. The concept of actionable feedback emerged as the core category from the data, around which timeliness, individualization, non-punitiveness, and customizability can be hierarchically ordered. Facilities with a successful record of guideline adherence tend to deliver more timely, individualized and non-punitive feedback to providers about their adherence than facilities with a poor record of guideline adherence. Consistent with findings from organizational research, feedback intervention characteristics may influence the feedback's effectiveness at changing desired behaviors.

Posted Content
TL;DR: In this article, the authors provide a synthesis and evaluation of empirical research on the governance effects associated with audit committees and provide a framework for analyzing the impact of audit committees, identifying potential perceived effects which may have led to their adoption and documented effects on aspects of the audit function, on financial reporting quality and on corporate performance.
Abstract: Arguments associated with the promotion of audit committees in many countries are premised on their potential for alleviating weaknesses in corporate governance This paper provides a synthesis and evaluation of empirical research on the governance effects associated with audit committees Given recent policy recommendations in several countries aimed at strengthening these committees, it is important to establish what research evidence demonstrates about their existing governance contribution A framework for analyzing the impact of audit committees is described, identifying potential perceived effects which may have led to their adoption and documented effects on aspects of the audit function, on financial reporting quality and on corporate performance It is argued that there is only limited and mixed evidence of effects to support claims and perceptions about the value of audit committees for these elements of governance It is also shown that most of the existing research has focused on factors associated with audit committee existence, characteristics and measures of activity and there is very little evidence on the processes associated with the operation of audit committees and the manner in which they influence organizational behaviour It is clear that there is no automatic relationship between the adoption of audit committee structures or characteristics and the achievement of particular governance effects, and caution may be needed over expectations that greater codification around factors such as audit committee members' independence and expertise as the means of "correcting" past weaknesses in the arrangements for audit committees The most fundamental question concerning what difference audit committees make in practice continues to be an important area for research development For future research we suggest (i) greater consideration of the organizational and institutional contexts in which audit committees operate; (ii) explicit theorization of the processes associated with audit committee operation; (iii) complementing extant research methods with field studies; and (iv) investigation of unintended (behavioural) as well as expected consequences of audit committees

Journal ArticleDOI
TL;DR: In this paper, the authors examined the association between external audit fees and board and audit committee characteristics of 736 Malaysian listed firms and found that audit fees are positively and significantly related to board independence, audit committee expertise, and the frequency of audit committee meetings.
Abstract: Purpose - The purpose of this study is to examine the association between external audit fees, and board and audit committee characteristics of 736 Malaysian listed firms. It is hypothesised that good corporate governance practices reduce auditors' risk assessments, resulting in lower audit fees. Drawing on the existence of a clearly identifiable ethnic domination of board membership and ownership of Malaysian listed firms, the study also posits that Bumiputera-controlled firms pay higher audit fees because of their weaker governance practices. Design/methodology/approach - This study employs a cross-sectional analysis of 736 firms listed on the Bursa Malaysia for the financial year ending in 2003. Multiple regression analysis is used to estimate the relationships proposed in the hypotheses. Findings - Overall, the results of this study reveal that external audit fees are positively and significantly related to board independence, audit committee expertise, and the frequency of audit committee meetings. The study also finds a strong negative association between external audit fees and Bumiputera-owned firms. An additional analysis into the internal governance structures of firms in the sample show that Bumiputera firms practice more favourable corporate governance practices compared to their non-Bumiputera counterparts. Originality/value - This study is a unique contribution in that it provides data on corporate governance practices in Malaysia for a large sample in the period after the corporate governance reforms taken by Malaysian capital market regulators and participants. Previous studies have shown that Bumiputera-controlled firms pay higher audit fees than non-Bumiputera-controlled firms. These studies have not tested theoretical explanations for this fee differential. Atheoretical explanation provided in the current study is that Bumiputera-controlled firms pay higher audit fees than non-Bumiputera-controlled firms partially because of differences in corporate governance practices. The study finds conflicting results with previous research suggesting that corporate governance practices have changed in Malaysia since the amendments of Bursa Malaysia Listing Requirements, 2001.

Posted Content
TL;DR: In this article, a model is developed and tested that characterizes the client-acceptance decisions as a process of risk evaluation and risk adaptation, and the model proposes that auditors will evaluate client-related risks and use that evaluation to determine if the audit firm will suffer a loss on the engagement via a lack of engagement profitability or future litigation.
Abstract: Little is known about how audit partners make the client-acceptance decision. A model is developed and tested that characterizes the client-acceptance decisions as a process of risk evaluation and risk adaptation. The model proposes that auditors will evaluate client-related risks and use that evaluation to determine if the audit firm will suffer a loss on the engagement via a lack of engagement profitability or future litigation. The model proposes that auditors will adapt to the client-acceptance risks by using 3 strategies: 1. screening clients based on their risk characteristics, 2. screening clients based on the audit firm's risk of loss on the engagement, and 3. more proactively adapting using strategies including adjusting the audit fee, making plans about necessary audit evidence, making plans about personnel assignment, and/or adjusting the amount of data collected during the client-acceptance process. To test the model, an experiment was conducted using 137 highly experienced audit partners as participants. The results show that the partners considered the relationships between client-related risks and used their evaluation of those risks to evaluate the audit firm's risk of loss on the engagement.

Journal ArticleDOI
TL;DR: In this paper, the authors summarize the findings of articles that have ranked academic accounting journals, as well as articles that provide other bases for considering journal quality, and conclude that five journals, Accounting, Organizations and Society, Contemporary Accounting Research, Journal of Accounting and Economics, Journal of Taxation, and The Accounting Review, rank consistently as the top journals in the field of accounting.
Abstract: In this article we summarize the findings of articles that have ranked academic accounting journals, as well as articles that provide other bases for considering journal quality. Results indicate that five journals— Accounting , Organizations and Society , Contemporary Accounting Research , Journal of Accounting and Economics , Journal of Accounting Research , and The Accounting Review —rank consistently as the top journals in the field. However, these five journals differ substantially as to the numbers of articles they publish overall as well as the proportions of articles that are related to the various specialty areas of accounting. Further, the relative proportions of articles by area do not correspond to the numbers of individuals working in the specialty areas. Financial accounting articles appear in disproportionately high numbers for all journals except Accounting , Organizations and Society , whereas management accounting articles appear in disproportionately low numbers for all journals except Accounting , Organizations and Society . In all journals, systems and tax articles also appear to be disproportionately low vis-a-vis the numbers of individuals working in these areas. Auditing receives fairly even exposure across journals and vis-a-vis individuals in the area, except in the Journal of Accounting and Economics .

Posted Content
TL;DR: In this paper, the authors examined the linkages between the audit and non-audit fees and accrual quality and found that higher audit effort and quality translate to a better accruality quality.
Abstract: This paper examines linkages between the audit and non-audit fees and accrual quality. We measure accrual quality by the Francis et al. (2005) modification of Dechow and Dichev (2002) measure. We posit that in settings where audit quality is compromised by a loss of auditor independence, managers use accruals more opportunistically and thereby drive down the accrual quality. Conversely, higher audit effort and quality translate to a better accrual quality. Our dependent variables are the relative magnitude of non-audit fees to audit fees, the absolute magnitudes of audit, non-audit and total fees. Results show that accrual quality has a significant negative association with the magnitude of non-audit fees but a significant positive association with audit fees. This latter result is consistent with the proposition that higher audit fee reflects higher audit effort and better judgments about the propriety of accruals, but is not consistent with the proposition that audit fee is associated with economic bonding.

Journal ArticleDOI
TL;DR: This study identifies the management of audit alarms and the prevention of the alarm floods as critical tasks in the CMBPC implementation process and develops an approach to solving these problems utilizing the hierarchical structure of alarms andThe role-based approach to assigning alarm destinations.

Journal ArticleDOI
TL;DR: In this paper, the effect of financial performance on the textual characteristics of the chairman's statement of 100 extremely profitable and extremely unprofitable UK listed companies was investigated by examining a range of textual characteristics.
Abstract: Purpose – The purpose of this paper is to assess the effect of financial performance on the textual characteristics of the chairman's statement. In particular, given the increased motives for poorly performing management to engage in impression management, the paper focuses on whether companies' reporting strategies depend on underlying financial performance. Design/methodology/approach – The research questions are investigated by examining a range of textual characteristics in the chairman's statements of 100 extremely profitable and extremely unprofitable UK listed companies. Findings – The results in this paper indicate that the chairman's statement is subject to impression management techniques as managers' propensity to associate themselves with company financial results is associated with the firm's underlying financial performance. There is also some evidence that unprofitable companies focus more on the future, rather than on past performance. Research limitations/implications – The paper shows the results of this study are based on samples of extremely profitable or extremely unprofitable companies and thus represent the tails of the distribution; further research using random sampling could investigate the extent to which the findings hold for all companies. Additional factors, such as changes in board membership, could also be examined in future research. Practical implications – The research in this paper has implications for the current state of financial reporting whereby auditors do not formally audit, but instead review, the chairman's statement to ascertain its consistency with the financial statements. Originality/value – The paper will be of value to academic researchers in the field of impression management and to users of annual reports who may rely on the chairman's statement for decision making.

Posted Content
TL;DR: In this article, the authors examine client acceptance and client continuance decisions of a large audit firm to provide empirical evidence on the extent and nature of risk avoidance that the firm uses to purposefully manage its client portfolio.
Abstract: We examine client acceptance and client continuance decisions of a large audit firm to provide empirical evidence on the extent and nature of risk avoidance that the firm uses to purposefully manage its client portfolio. Our results support several key new inferences regarding audit firm portfolio management decisions. First, the results show that this firm is shedding the riskier clients in its portfolio, consistent with the risk avoidance theory of audit firm portfolio management. Second, the results show that the firm's newly accepted clients are less risky than its continuing clients. Although results of both the client continuance and client acceptance decisions imply a less risky portfolio emerging over time, there are greater differences in risk between continuing and discontinued clients than between continuing and newly accepted clients. Third, we find that audit risk factors are more important in audit firm portfolio management decisions than are financial risk factors. Finally, we find no evidence that audit pricing affects the client acceptance and continuance decisions of this firm, controlling for risk and other client characteristics.

Journal ArticleDOI
TL;DR: In this paper, the authors address the endogeneity issue by modeling the confluence of audit fees, fees for non-audit services and abnormal accruals in a system of simultaneous equations.
Abstract: Prior research has estimated piece-meal the determinants of audit fees, non-audit fees and abnormal accruals. Intuition, informal analysis, and a variety of theories suggest that audit fees, non-audit fees, and abnormal accruals are jointly determined. We address this endogeneity issue by modeling the confluence of audit fees, fees for non-audit services and abnormal accruals in a system of simultaneous equations.

Journal ArticleDOI
TL;DR: In this article, the authors explore the issues of trust, control, professional autonomy and accountability in higher education quality assurance in the UK and argue that accountability and transparency are important principles that academics should wholeheartedly embrace.
Abstract: This article explores the issues of trust, control, professional autonomy and accountability in higher education quality assurance in the UK. The main part of this article is conceptual, but it includes results from semi-structured interviews with academic staff that were conducted at two “new university” business schools. Both institutions are broadly similar in their key characteristics and have experienced a transformation to university status in the early 1990s. The article argues that there has been a change from informal “light-touch” quality control systems based on local practices and a significant amount of trust and professional autonomy in the early 1990s to a highly prescribed process of audit-based quality control today. The article argues that accountability and transparency are important principles that academics should wholeheartedly embrace, but that the audit format adopted in the UK introduces a one-way accountability and provides “rituals of verification” (Power 1997) instead of fostering trust, has high opportunity costs and may well be detrimental to innovative teaching and learning.

Journal ArticleDOI
TL;DR: In this article, the Big 4 audit firms exhibit higher quality reporting by having fewer "audit reporting errors" in the context of issuing going-concern modified reports over an 11-year period.
Abstract: Prior research suggests that the Big 4 audit firms are of higher quality than are non‐Big 4 firms. However, existing tests for an association between audit firm size and reporting accuracy are indirect and provide mixed results. Our study extends this line of research by examining whether the Big 4 audit firms exhibit higher quality reporting by having fewer “audit‐reporting errors” in the context of issuing going‐concern modified reports. Our analyses examine both types of going‐concern reporting errors (i.e., type I errors—modified opinions rendered to subsequently viable clients; and type II errors—unmodified opinions rendered to subsequently bankrupt clients) over an 11‐year period. We also examine reporting error rate differences between the national second‐tier firms and regional/local third‐tier firms. Our findings indicate that both type I and type II error rates for Big 4 audit firms are significantly lower compared to non‐Big 4 firms. In contrast, we find no significant differences between the n...

Journal ArticleDOI
TL;DR: In this article, the authors examine the role of knowledge sharing in public accounting firms' ability to effectively deploy knowledgesharing activities, including gaining tangible benefits in terms of time and cost reductions.
Abstract: The goal of this study is to advance understanding of factors that may enhance or hinder knowledge sharing in public accounting firms and, in the end, provide practical recommendations for the firms. Attention to this topic is warranted for two reasons. First, today's regulatory environment and new auditing standards have broadened and intensified pressures on CPA firms to enhance the quality, effectiveness, and efficiency of the audit process. Second, knowledge and expertise are unevenly distributed among the members of the audit team. Thus, knowledge sharing can help CPA firms in leveraging the skills, knowledge, and best practices of their professional staff. Against this background, CPA firms' ability to effectively deploy knowledgesharing activities is increasingly vital to their competitive advantage, including gaining tangible benefits in terms of time and cost reductions. We draw upon prior research in accounting, organizational learning, psychology, and knowledge management to examine the role of...

Journal ArticleDOI
TL;DR: In this article, the authors explore the voluntary use of internal audit by Australian publicly listed companies and to identify factors that lead listed companies to have an internal audit function, finding that only one-third of the sample companies use internal audit.
Abstract: Purpose The purpose of this study is to explore the voluntary use of internal audit by Australian publicly listed companies and to identify factors that lead listed companies to have an internal audit function. Design/methodology/approach Drawing on the Institute of Internal Auditors' definition of internal auditing, the paper predicts that internal audit use is associated with factors related to risk management, strong internal controls and strong corporate governance. To test the predictions, the study combines data from a survey of listed companies with information from corporate annual reports. The paper also provides descriptive information on the use of internal audit. Findings The results indicate that only one-third of the sample companies use internal audit. While size appears to be the dominant driver, there is also a strong association between internal audit and the level of commitment to risk management. However, the study finds only weak support for an association between the use of internal audit and strong corporate governance. Research limitations/implications A limitation of our study is that some of the variables in the model may not be good proxies for the factors being measured. Refinement of the model and the variables used provides an opportunity for future research. Practical implications The limited use of internal audit by Australian companies has important implications for sound corporate governance. Originality/value This is the first study that identifies factors associated with the use of internal audit by Australian listed companies.

Journal ArticleDOI
TL;DR: In this paper, the authors provide a qualitative assessment of the relationship between internal audit and senior management, analysing the expectations and perceptions of both parties, and find that senior management's expectations have a significant influence on internal audit, and that internal audit is able to meet most of these expectations.
Abstract: This study, based upon Belgian case studies, provides a qualitative assessment of the relationship between internal audit and senior management, analysing the expectations and perceptions of both parties. We found that senior management's expectations have a significant influence on internal audit and that internal audit, generally, is able to meet most of these expectations. Senior management wants internal audit to compensate for the loss of control they experience resulting from increased organisational complexity. Senior management expects internal audit to fulfil a supporting role in the monitoring and improvement of risk management and internal control, and wants them to monitor the corporate culture. Furthermore, they expect internal audit to be a training ground for future managers. On the other hand, internal audit expects senior management to take the first steps in the formalisation of the risk management system. They are looking for senior management support, as this benefits their overall acceptance.

Journal ArticleDOI
TL;DR: In this article, the authors investigate whether, under the influence of recent changes in corporate governance regulations, a greater financial emphasis in internal auditors' work can be noticed in the Belgian context where internal auditing is a relatively young profession.
Abstract: In addition to a number of quantitative studies in this area, this study wants firstly to elaborate in a complementary qualitative way how internal auditors perceive their current role in risk management within the Belgian context where internal auditing is a relatively young profession. Secondly, we want to investigate whether, under the influence of recent changes in corporate governance regulations, a greater financial emphasis in internal auditors’ work can be noticed. Thirdly, we are interested in differences between Belgian companies and Belgian subsidiaries of US companies with relation to internal auditors’ role in risk management. In order to get adequate data, we interviewed 10 Chief Audit Executives and collected relevant documents. The data reveal that the specific content of internal auditors’ role in risk management is very time and country specific. For the Belgian companies, internal auditors’ focus on acute shortcomings in the risk management system creates opportunities to demonstrate their value in the short run. Internal auditors are playing a pioneering role in the creation of a higher level of risk and control awareness and a more formalised, standardised, transparent and documented risk management system. In the Belgian subsidiaries of US companies, internal auditors’ objective evaluations and opinions are a valuable input for the new internal control review and disclosure requirements mentioned in the Sarbanes Oxley Act. Moreover, an enhanced attention for financial controls and the quality of financial reporting was noticed within these companies.

Journal ArticleDOI
TL;DR: An acceptable, valid, and reliable cleft speech audit tool has been developed based on a small sample and is recommended for use in intercenter audit studies in the U.K. and Ireland and could be used in other English-speaking countries.
Abstract: OBJECTIVES: To develop an assessment tool for use in intercenter audit studies of cleft speech and to test its acceptability, validity, and reliability. The tool is to be used systematically to record and report speech outcomes, providing an indication of treatment needs and continuing burden of care. SETTING: Regional Cleft Center, U.K. METHODS: The Cleft Audit Protocol for Speech-Augmented (CAPS-A) was developed by three cleft speech experts who identified the key features required from existing assessment measures. Criterion validity was assessed by comparing the Cleft Audit Protocol for Speech-Augmented outcomes reported for 20 cases with clinical assessment results and other investigations. Intra- and interrater reliability were tested following the training of specialist speech and language therapists who used the Cleft Audit Protocol for Speech-Augmented on two occasions to assess 10 cases. The raters evaluated acceptability and ease of using a questionnaire. RESULTS: The mean percentage agreement for criterion validity in each section was 87% (range 70% to 100%). Both intra- and interexaminer reliability were rated as good/very good (Kappa 0.61 to 1.00) for seven sections and moderate (Kappa 0.41 to 0.60) for three sections. Raters reported that the Cleft Audit Protocol for Speech-Augmented was acceptable and easy to use with appropriate training. CONCLUSION: An acceptable, valid, and reliable cleft speech audit tool has been developed based on a small sample. The Cleft Audit Protocol for Speech-Augmented is recommended for use in intercenter audit studies in the U.K. and Ireland and could be used in other English-speaking countries. In addition, it has wider applicability for use in reporting speech outcomes of surgical procedures

Journal ArticleDOI
TL;DR: In this article, the authors examined the residual fee-response coefficient relation for annual earnings announcements immediately before and after the release of the earnings and concluded that abnormally profitable engagements are a threat to auditor independence.
Abstract: Effective February 05, 2001, publicly traded companies are required to disclose audit and nonaudit fees paid to their external auditors. These fee data have been used to test whether auditor independence is impaired when the external auditor provides nonaudit services to a client, usually by examining whether certain earnings characteristics are related to nonaudit fees in ways that suggest impairment. This paper follows in that tradition by testing whether the earnings response coefficient (ERC), a proxy for earnings quality, is associated with engagement profitability. Residual fees derived from a two‐stage regression model that prices audit and nonaudit services simultaneously are used to proxy for engagement profitability. If the market perceives abnormally profitable engagements as a threat to auditor independence, then we would expect the ERC to be lower for firms with positive fee residuals. The paper examines the residual fee‐ERC relation for annual earnings announcements immediately before and af...