IDEAS home Printed from https://ideas.repec.org/a/eee/jocaae/v15y2019i1p1-19.html
   My bibliography  Save this article

The impact of internal audit attributes on the effectiveness of internal control over operations and compliance

Author

Listed:
  • Chang, Yu-Tzu
  • Chen, Hanchung
  • Cheng, Rainbow K.
  • Chi, Wuchun

Abstract

The internal audit function (IAF) assists management in improving internal controls over operations, reporting, and compliance. While many studies examine the association between the IAF and the internal control over financial reporting (ICFR), little is known about internal control over operations and compliance. Using a unique dataset from Taiwan, this paper examines the association between IAF quality and internal control deficiencies in operations and compliance. The results suggest that a larger internal audit team can enhance internal audit performance for both operations and compliance, whereas internal auditor competence is positively associated with the effectiveness of internal control over compliance, but not operations. This study contributes to the literature by shedding light on the determinants of the achievement of operations and compliance objectives. It also provides important implications for stakeholders and practitioners, as a company’s control over operations and compliance may mutually influence its ICFR and ultimately its business success.

Suggested Citation

  • Chang, Yu-Tzu & Chen, Hanchung & Cheng, Rainbow K. & Chi, Wuchun, 2019. "The impact of internal audit attributes on the effectiveness of internal control over operations and compliance," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(1), pages 1-19.
    • Handle: RePEc:eee:jocaae:v:15:y:2019:i:1:p:1-19
    DOI: 10.1016/j.jcae.2018.11.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1815566918301589
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcae.2018.11.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hollis Ashbaugh‐Skaife & Daniel W. Collins & William R. Kinney Jr & Ryan Lafond, 2009. "The Effect of SOX Internal Control Deficiencies on Firm Risk and Cost of Equity," Journal of Accounting Research, Wiley Blackwell, vol. 47(1), pages 1-43, March.
    2. Alexander, Cindy R. & Bauguess, Scott W. & Bernile, Gennaro & Lee, Yoon-Ho Alex & Marietta-Westberg, Jennifer, 2013. "Economic effects of SOX Section 404 compliance: A corporate insider perspective," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 267-290.
    3. Wuchun Chi & Huichi Huang & Yichun Liao & Hong Xie, 2009. "Mandatory Audit Partner Rotation, Audit Quality, and Market Perception: Evidence from Taiwan," Contemporary Accounting Research, John Wiley & Sons, vol. 26(2), pages 359-391, June.
    4. Doyle, Jeffrey & Ge, Weili & McVay, Sarah, 2007. "Determinants of weaknesses in internal control over financial reporting," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 193-223, September.
    5. Ashbaugh-Skaife, Hollis & Collins, Daniel W. & Kinney Jr., William R., 2007. "The discovery and reporting of internal control deficiencies prior to SOX-mandated audits," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 166-192, September.
    6. Chih†Ying Chen & Chan†Jane Lin & Yu†Chen Lin, 2008. "Audit Partner Tenure, Audit Firm Tenure, and Discretionary Accruals: Does Long Auditor Tenure Impair Earnings Quality?," Contemporary Accounting Research, John Wiley & Sons, vol. 25(2), pages 415-445, June.
    7. Sarah C. Rice & David P. Weber, 2012. "How Effective Is Internal Control Reporting under SOX 404? Determinants of the (Non‐)Disclosure of Existing Material Weaknesses," Journal of Accounting Research, Wiley Blackwell, vol. 50(3), pages 811-843, June.
    8. Wuchun Chi & Dan Dhaliwal & Oliver Zhen Li & Tzong‐Huei Lin, 2013. "Voluntary Reporting Incentives and Reporting Quality: Evidence from A Reporting Regime Change for Private Firms in Taiwan," Contemporary Accounting Research, John Wiley & Sons, vol. 30(4), pages 1462-1489, December.
    9. Lawrence J. Abbott & Brian Daugherty & Susan Parker & Gary F. Peters, 2016. "Internal Audit Quality and Financial Reporting Quality: The Joint Importance of Independence and Competence," Journal of Accounting Research, Wiley Blackwell, vol. 54(1), pages 3-40, March.
    10. Feng, Mei & Li, Chan & McVay, Sarah, 2009. "Internal control and management guidance," Journal of Accounting and Economics, Elsevier, vol. 48(2-3), pages 190-209, December.
    11. Boone, Audra L. & Casares Field, Laura & Karpoff, Jonathan M. & Raheja, Charu G., 2007. "The determinants of corporate board size and composition: An empirical analysis," Journal of Financial Economics, Elsevier, vol. 85(1), pages 66-101, July.
    12. Alzeban, Abdulaziz & Gwilliam, David, 2014. "Factors affecting the internal audit effectiveness: A survey of the Saudi public sector," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 23(2), pages 74-86.
    13. Dessalegn Getie Mihret & Getachew Zemenu Woldeyohannis, 2008. "Value-added role of internal audit: an Ethiopian case study," Managerial Auditing Journal, Emerald Group Publishing, vol. 23(6), pages 567-595, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shaojun Yan & Yiyang Xi & Zhaoxiang Wu, 2024. "Enterprise Digital Transformation and Compliance in Cross-Regional Development: A Dynamic Capabilities Perspective," Sustainability, MDPI, vol. 16(2), pages 1-54, January.
    2. Wasswa Asaph Senoga, 2023. "The Effect of Accountability, Transparency, And Integrity of Church Leaders on Fraud Prevention in The Management of Church Funds," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(1), pages 1388-1409, January.
    3. Chen, Yu & Gu, Xin & Gao, Yongqiang & Lan, Tian, 2021. "Sustainability with high-speed rails: The effects of transportation infrastructure development on firms’ CSR performance," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(2).
    4. Adrian-Cosmin Caraiman, 2020. "Responsibility for Internal Control in Corporate Governance," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 612-618, December.
    5. Steven Grima & Peter J. Baldacchino & Simon Grima & Murat Kizilkaya & Norbert Tabone & Lauren Ellul, 2023. "Designing a Characteristics Effectiveness Model for Internal Audit," JRFM, MDPI, vol. 16(2), pages 1-44, January.
    6. Likhona Mlamla & Mary S. Mangai & Tyanai Masiya & Natasja Holzhauseni, 2022. "Stakeholders' experience of the innovative ways of coproducing neighborhood security in Johannesburg, South Africa," Technium Social Sciences Journal, Technium Science, vol. 31(1), pages 44-57, May.
    7. Suyon Kim, 2021. "Does Engagement Partners’ Effort Affect Audit Quality? With a Focus on the Effects of Internal Control System," Risks, MDPI, vol. 9(12), pages 1-17, December.
    8. George Drogalas & Konstantinos Petridis & Nikolaos E. Petridis & Eleni Zografidou, 2020. "Valuation of the internal audit mechanisms in the decision support department of the local government organizations using mathematical programming," Annals of Operations Research, Springer, vol. 294(1), pages 267-280, November.
    9. Imran Abbas Jadoon & Umara Noreen & Usman Ayub & Muhammad Tahir & Naima Shahzadi, 2021. "The Impact of Family Ownership on Quality and Disclosure of Internal Control in Pakistan," Sustainability, MDPI, vol. 13(16), pages 1-16, August.
    10. Oliver Henk, 2020. "Internal control through the lens of institutional work: a systematic literature review," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 31(3), pages 239-273, September.
    11. Jaehong Lee & Suyon Kim, 2020. "Does Human Resource Investment for Internal Control System Enhance Future Cash Flow Predictability?," Sustainability, MDPI, vol. 12(20), pages 1-16, October.
    12. repec:thr:techub:10031:y:2022:i:1:p:44-57 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    2. Ge, Weili & Koester, Allison & McVay, Sarah, 2017. "Benefits and costs of Sarbanes-Oxley Section 404(b) exemption: Evidence from small firms’ internal control disclosures," Journal of Accounting and Economics, Elsevier, vol. 63(2), pages 358-384.
    3. Margaret A. Abernethy & Wei Li & Yunyan Zhang & Hanzhong Shi, 2023. "Firm culture and internal control system," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3095-3123, September.
    4. Sean T. McGuire & Stevanie S. Neuman & Sarah C. Rice, 2020. "Interim Effective Tax Rate Estimates and Internal Control Quality," Contemporary Accounting Research, John Wiley & Sons, vol. 37(1), pages 603-633, March.
    5. Baolei Qi & Liuchuang Li & Qing Zhou & Jinghui Sun, 2017. "Does internal control over financial reporting really alleviate agency conflicts?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(4), pages 1101-1125, December.
    6. Elsayed, Mohamed & Elshandidy, Tamer, 2021. "Internal control effectiveness, textual risk disclosure, and their usefulness: U.S. evidence," Advances in accounting, Elsevier, vol. 53(C).
    7. Skaife, Hollis A. & Veenman, David & Wangerin, Daniel, 2013. "Internal control over financial reporting and managerial rent extraction: Evidence from the profitability of insider trading," Journal of Accounting and Economics, Elsevier, vol. 55(1), pages 91-110.
    8. Inder K. Khurana & Hoyoun Kyung, 2021. "Internal control material weakness and CEO recruitment," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 1940-1987, October.
    9. Lenard, Mary Jane & Petruska, Karin A. & Alam, Pervaiz & Yu, Bing, 2016. "Internal control weaknesses and evidence of real activities manipulation," Advances in accounting, Elsevier, vol. 33(C), pages 47-58.
    10. Shi, Wei & Wang, Rencheng, 2012. "Dynamic internal control performance over financial reporting and external financing," Journal of Contemporary Accounting and Economics, Elsevier, vol. 8(2), pages 92-109.
    11. Beng Wee Goh & Jayanthi Krishnan & Dan Li, 2013. "Auditor Reporting under Section 404: The Association between the Internal Control and Going Concern Audit Opinions," Contemporary Accounting Research, John Wiley & Sons, vol. 30(3), pages 970-995, September.
    12. Ranjan D’Mello & Xinghua Gao & Yonghong Jia, 2017. "Internal control and internal capital allocation: evidence from internal capital markets of multi-segment firms," Review of Accounting Studies, Springer, vol. 22(1), pages 251-287, March.
    13. Navarro, Patricia & Robb, Sean W.G. & Sutton, Steve G. & Weisner, Martin M., 2020. "The cost stickiness of information technology material weaknesses: An intertemporal comparison between it-related and other material weaknesses," International Journal of Accounting Information Systems, Elsevier, vol. 37(C).
    14. Todd D. Kravet & Sarah E. McVay & David P. Weber, 2018. "Costs and benefits of internal control audits: evidence from M&A transactions," Review of Accounting Studies, Springer, vol. 23(4), pages 1389-1423, December.
    15. Chen, Hanwen & Yang, Daoguang & Zhang, Joseph H. & Zhou, Haiyan, 2020. "Internal controls, risk management, and cash holdings," Journal of Corporate Finance, Elsevier, vol. 64(C).
    16. Su, Lixin (Nancy) & Zhao, Xuezhou (Rachel) & Zhou, Gaoguang (Stephen), 2014. "Do customers respond to the disclosure of internal control weakness?," Journal of Business Research, Elsevier, vol. 67(7), pages 1508-1518.
    17. Bolton, Brian & Lian, Qin & Rupley, Kathleen & Zhao, Jing, 2016. "Industry contagion effects of internal control material weakness disclosures," Advances in accounting, Elsevier, vol. 34(C), pages 27-40.
    18. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    19. Ji, Xu-dong & Lu, Wei & Qu, Wen, 2015. "Determinants and economic consequences of voluntary disclosure of internal control weaknesses in China," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(1), pages 1-17.
    20. Yu-En Lin & Hsiang-Hsuan Chih & Chia-Hsien Tang & Tai-Hsun Huang, 2015. "The Impact Of Internal Control On Firm’S Risk And Performance," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 10(02), pages 1-18, December.

    More about this item

    Keywords

    Internal audit function; Internal control deficiency; Auditor competence;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jocaae:v:15:y:2019:i:1:p:1-19. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-contemporary-accounting-and-economics .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.