Internal audit involvement in enterprise risk management

Purpose – The purpose of this paper is to examine the impact of internal auditors’ involvement in enterprise risk management (ERM) on perceptions of their willingness to report a breakdown in risk procedures and whether a strong relationship with the audit committee affects such willingness to report. The study also investigates the use of ERM and the role of internal audit in ERM in Australian private and public sector entities.
Design/methodology/approach – The study uses an experimental design, manipulating the internal auditor’s involvement in ERM and the strength of the relationship between internal audit and the audit committee. Participants are 117 certified internal auditors. The study also gathers descriptive data on the use of ERM.
Findings – The study indicates that a high involvement in ERM impacts the perceptions of internal
auditors’ willingness to report a breakdown in risk procedures to the audit committee. However, a strong relationship with the audit committee does not appear to affect their perceived willingness to report. The study also finds that the majority of organisations have recently adopted ERM. Internal auditors are involved in ERM assurance activities but some also engage in activities that could compromise objectivity.
Research limitations/implications – There are internal and external validity threats associated with the experimental design.
Practical implications – The findings reinforce the need for organisations to adhere to the recommendations of the Institute of Internal Auditors and to ensure that internal auditors do not play an inappropriate role in ERM.
Originality/value – The paper contributes to our understanding of the impact of involvement in ERM on internal audit objectivity and of the current role of internal audit in ERM in Australia.

The my school website in Australia

 The My School website in Australia offers moderately nuanced comparisons between any school and sixty other socio-educationally similar schools. Detrimental effects on poor-performing schools are small because it is forbidden to use these comparisons to construct league tables. More generally, however, the website promotes practices of auditing employees. As such it undermines teachers’ sense of integrity and any sense that they are professionals who society respects enough to entrust with an important task. It is not surprising that very few teachers use it, and it would seem not many parents use it either. A left-of-centre government established the website despite opposition by the teacher unions but with the support of News Corporation. New Public Management and an accompanying great increase in auditing offer a deeper explanation for why the website was established. Public servants and political leaders of both the left and the right support the transparency about school performance so My School is likely to continue. An alliance between teacher unions, parents and community groups might see education policy switch tracks from the present market orientation to a welfare orientation.

The role of internal audit in corporate governance and management

This research report is based on a study undertaken in Australia, and aims to evaluate the role of internal audit in corporate governance and management. It identifies the accountability structures and objectives of internal audit, considers the nature of internal audit functions and the extent of application of The Institute of Internal Auditors Standards of Professional Practice, reviews the relationships of the chief audit executives (CAEs) and assesses the nature of financial report risks and other issues covered by internal auditors. The research findings include a diversity of accountability structures for CAEs and a range of internal audit activities, with the application of the IIA Standards being in need of improvement. In conclusion, the researchers make recommendations for improvements in practice to be considered by The Institute of Internal Auditors and other regulating and governing bodies.

International and culturally inclusive curricula-an engineering management unit audit case study

SEB421 Strategic Issues in Engineering is a final-year engineering management study unit at Deakin University in which the enrolled student population has grown to include significant numbers of international students. Given this change, it was considered timely to conduct a review of the unit, with regard to principles of international and culturally inclusive curricula. Despite the historically white Anglo-Saxon male culture of engineering education in Australia, there are a wide range of international and cultural aspects related to engineering education. A review of the literature reveals a diversity of interpretations of 'internationalisation' and 'cultural inclusiveness'. From a pragmatic perspective, it is noted that organisational policy can provide guidance for academic staff seeking to make courses more inclusive. From a review of the literature and relevant university policies, a list of 'international and culturally inclusive curricula' guidelines for engineering management education was developed. Comparing a prior audit of SEB421 with these guidelines revealed progress on international and culturally inclusive curricula, but identified opportunities for improvement. The guidelines were applied to the curriculum/syllabus, content/study materials, conduct and assessment of the unit, to identify further opportunities for improvement. A plan for improvement of the unit and an associated timetable for this work were developed. It was noted that some changes can be made immediately, while others are contingent upon the timetable imposed by university systems. It was further noted that issues of change within a single study unit intersect with wider issues of program curriculum, and, while pilot activities can provide a start, eventually the wider issue of international and culturally inclusive curricula across the entire undergraduate engineering program needs to be considered.

Risk management and ethical environment : effects on internal audit and accounting control procedures

This study examines the impact of the scope of risk management and ethical environment on internal audit activities and the quality of accounting control procedures (ACPQ). The conceptual framework for the study is guided by COSO’s frameworks on internal controls and enterprise risk management and data from a questionnaire survey of 64 Australian firms are analysed using a structural equation model. The results of the study support that (1) internal audit activities have a significant intervening effect on the relationship between the scope of risk management and ACPQ, and (2) a direct and positive relationship exists between ethical environment and ACPQ. Our findings suggest that widening the scope of risk management activities do not directly improve ACPQ, but that it leads to more extensive internal audit activities and in turn such activities promote better ACPQ. Further, the results indicate that fostering a more ethical environment directly leads to higher ACPQ. These results have implications for the design of internal controls, namely with respect to the role of internal audit activities and ethical environment in enhancing ACPQ.

Audit quality : earnings management in the context of the Asian crisis

This study assumes that evidence regarding audit quality can be derived from the level of earnings management reflected in reported abnormal or discretionary accruals. Given this assumption, audit quality is examined in the context of the 1997 Asian financial crisis using data from Malaysia. Examining audit quality in its association with earnings management across differential macroeconomic periods provides insights that may be otherwise masked. The period of the crisis is partitioned between pre-crisis (1994-1996), crisis (1997-1998) and post-crisis (1999). Using a robust approach to the measurement of abnormal accruals, the association of Big 5/non-Big 5 and Industry Specialist/Industry non-specialist auditors with both the levels of, and change in levels of, abnormal accruals is investigated across and within the crisis sub-periods from 1994-1999. Audit quality is found to be associated with abnormal accruals, and differentially so across macroeconomic period with greater constraint evident post-crisis.

Audit quality : earnings management in the context of the 1997 Asian crisis

This study assumes that evidence regarding audit quality can be derived from the level of earnings management reflected in reported abnormal or discretionary accruals. Given this assumption, audit quality is examined in the context of the 1997 Asian financial crisis using data from Malaysia. Examining audit quality in its association with earnings management across differential macroeconomic periods provides insights that may be otherwise masked. The period of the crisis is partitioned between pre-crisis (1994-1996), crisis (1997-1998) and post-crisis (1999). Using a robust approach to the measurement of abnormal accruals, the association of Big 5/non-Big 5 and Industry Specialist/Industry non-specialist auditors with both the levels of, and change in levels of, abnormal accruals is investigated across and within the crisis sub-periods from 1994-1999. Audit quality is found to be associated with abnormal accruals, and differentially so across macroeconomic period with greater constraint evident post-crisis.