Title

An Experimental Investigation of the Interaction Effect of Management Training Ground and Reporting Lines on Internal Auditors' Objectivity

Document Type

Article

Publication Date

1-15-2018

Publication Title

International Journal of Auditing

Volume

22

Issue

2

First page number:

150

Last page number:

163

Abstract

Seventy‐nine experienced internal auditors participated in an experiment investigating two factors that may affect internal auditors’ objectivity: (1) whether the internal audit function is used as a management training ground, and (2) whether the internal auditors’ reporting line is to management or the audit committee. Participants completed a case wherein management and the audit committee hold conflicting preferences regarding a major corporate investment opportunity. Participants evaluated relevant business risks and made an overall recommendation concerning the investment. The results include three important findings. First, we observe an interaction effect between management training ground and reporting line. When the internal audit function is not used as a management training ground, internal auditors’ risks assessments do not significantly differ by reporting line. However, when the internal audit function is used as a management training ground, internal auditors’ risk assessments align with management's preferences when auditors report to senior management versus the audit committee. Second, when the internal audit function is a management training ground, internal auditors provide more favorable investment recommendations (i.e., consistent with management's preferences). Third, internal auditors unexpectedly provided more favorable recommendations to the audit committee than to management.

Keywords

Internal audit function; Internal auditors; Management training ground; Objectivity

Disciplines

Accounting

Language

English

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