Monitoring Effects of the Internal Audit Function: Agency Theory versus other Explanatory Variables

Monitoring Effects of the Internal Audit Function: Agency Theory versus other Explanatory Variables This study investigates (1) whether agency variables are associated with the relative size of the internal audit function (IAF); (2) whether the IAF is complementary to other monitoring mechanisms such as independent board members and an active audit committee; and (3) the impact of the control environment on the relative size of the IAF. We use data from a sample of Belgian firms. We find evidence of a monitoring role for the IAF in corporate governance. Specifically, the relative IAF size is positively related to management share ownership. Also, we find evidence for a substitution effect between independent board members and the IAF. Finally, it turns out that a supportive control environment also has a positive impact on the relative size of the IAF. Our results can benefit companies interested in assessing the current size of their IAF and the role that it can play in corporate governance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Auditing Wiley

Monitoring Effects of the Internal Audit Function: Agency Theory versus other Explanatory Variables

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Publisher
Wiley
Copyright
© 2010 Blackwell Publishing Ltd
ISSN
1090-6738
eISSN
1099-1123
DOI
10.1111/j.1099-1123.2010.00419.x
Publisher site
See Article on Publisher Site

Abstract

This study investigates (1) whether agency variables are associated with the relative size of the internal audit function (IAF); (2) whether the IAF is complementary to other monitoring mechanisms such as independent board members and an active audit committee; and (3) the impact of the control environment on the relative size of the IAF. We use data from a sample of Belgian firms. We find evidence of a monitoring role for the IAF in corporate governance. Specifically, the relative IAF size is positively related to management share ownership. Also, we find evidence for a substitution effect between independent board members and the IAF. Finally, it turns out that a supportive control environment also has a positive impact on the relative size of the IAF. Our results can benefit companies interested in assessing the current size of their IAF and the role that it can play in corporate governance.

Journal

International Journal of AuditingWiley

Published: Mar 1, 2011

References

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