IDEAS home Printed from https://ideas.repec.org/a/kap/jbuset/v162y2020i1d10.1007_s10551-018-3969-0.html
   My bibliography  Save this article

Manifold Conceptions of the Internal Auditing of Risk Culture in the Financial Sector

Author

Listed:
  • Vikash Kumar Sinha

    (KTH Royal Institute of Technology
    Politecnico Di Milano)

  • Marika Arena

    (Politecnico Di Milano)

Abstract

This exploratory study investigates the manifold conceptions of the internal auditing (IA) of risk culture prevalent among four influential actors of the financial sector—regulators, normalizers, consultants, and implementers. By inductive analysis of 20 interviews and 295 documents, we illustrate a two-step interpretive scheme utilized by the four actors in their IA approaches of risk culture: defining broad goals and designing visibility schemes. The visibility schemes were tied to the demarcation, measurement, as well as the IA data collection techniques of risk culture. Our results indicate two dichotomous interpretations among the four actors concerning the IA of risk culture. The first interpretation, prevalent among regulators and implementers, promotes the control of risk culture primarily through verification. The second interpretation, adopted by consultants and normalizers, promotes the control of risk culture by IA along with the empowerment of employees through training programs. Our results not only contribute to understanding IA expansions, specifically to non-tangible domains such as risk culture but also enrich the literature exploring the mechanisms different stakeholders utilize to shape weakly professionalized IA practices.

Suggested Citation

  • Vikash Kumar Sinha & Marika Arena, 2020. "Manifold Conceptions of the Internal Auditing of Risk Culture in the Financial Sector," Journal of Business Ethics, Springer, vol. 162(1), pages 81-102, February.
    • Handle: RePEc:kap:jbuset:v:162:y:2020:i:1:d:10.1007_s10551-018-3969-0
    DOI: 10.1007/s10551-018-3969-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10551-018-3969-0
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10551-018-3969-0?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. Robson, Keith & Humphrey, Christopher & Khalifa, Rihab & Jones, Julian, 2007. "Transforming audit technologies: Business risk audit methodologies and the audit field," Accounting, Organizations and Society, Elsevier, vol. 32(4-5), pages 409-438.
    2. Lourens Erasmus & Philna Coetzee, 2018. "Drivers of stakeholders’ view of internal audit effectiveness," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 33(1), pages 90-114, January.
    3. Andrew D. Chambers & Marjan Odar, 2015. "A new vision for internal audit," Managerial Auditing Journal, Emerald Group Publishing, vol. 30(1), pages 34-55, January.
    4. Mihret, Dessalegn Getie, 2014. "How can we explain internal auditing? The inadequacy of agency theory and a labor process alternative," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 25(8), pages 771-782.
    5. Like Jiang & Paul André & Chrystelle Richard, 2018. "An international study of internal audit function quality," Accounting and Business Research, Taylor & Francis Journals, vol. 48(3), pages 264-298, April.
    6. Gerrit Sarens & Rita Lamboglia, 2014. "The (mis)fit between the profile of internal auditors and internal audit activities," Accounting and Business Research, Taylor & Francis Journals, vol. 44(1), pages 41-62, February.
    7. Pentland, Brian T., 2000. "Will auditors take over the world? Program, technique and the verification of everything," Accounting, Organizations and Society, Elsevier, vol. 25(3), pages 307-312, April.
    8. Dennis H. Caplan & Michael Kirschenheiter, 2000. "Outsourcing and Audit Risk for Internal Audit Services," Contemporary Accounting Research, John Wiley & Sons, vol. 17(3), pages 387-428, September.
    9. Vaivio, J., 2006. "The accounting of "The Meeting": Examining calculability within a "Fluid" local space," Accounting, Organizations and Society, Elsevier, vol. 31(8), pages 735-762, November.
    10. Andrew D. Chambers, 2014. "Guidance on internal audit's interface with regulators: An analysis and appraisal of recent developments," Managerial Auditing Journal, Emerald Group Publishing, vol. 29(3), pages 268-283, February.
    11. Sarens, Gerrit & De Beelde, Ignace & Everaert, Patricia, 2009. "Internal audit: A comfort provider to the audit committee," The British Accounting Review, Elsevier, vol. 41(2), pages 90-106.
    12. Mia Kaspersen & Thomas Riise Johansen, 2016. "Changing Social and Environmental Reporting Systems," Journal of Business Ethics, Springer, vol. 135(4), pages 731-749, June.
    13. William L. Felix, Jr. & Audrey A. Gramling & Mario j. Maletta, 2001. "The Contribution of Internal Audit as a Determinant of External Audit Fees and Factors Influencing This Contribution," Journal of Accounting Research, Wiley Blackwell, vol. 39(3), pages 513-534, December.
    14. Alessandro Carretta & Vincenzo Farina & Paola Schwizer, 2017. "Risk culture and banking supervision," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 25(2), pages 209-226, May.
    15. Dean Neu & Jeff Everett & Abu Shiraz Rahaman, 2013. "Internal Auditing and Corruption within Government: The Case of the Canadian Sponsorship Program," Contemporary Accounting Research, John Wiley & Sons, vol. 30(3), pages 1223-1250, September.
    16. Laurence Ferry & Zamzulaila Zakaria & Zarina Zakaria & Richard Slack, 2017. "Watchdogs, helpers or protectors? – Internal auditing in Malaysian Local Government," Accounting Forum, Taylor & Francis Journals, vol. 41(4), pages 375-389, December.
    17. Fanning, Kirsten & David Piercey, M., 2014. "Internal auditors’ use of interpersonal likability, arguments, and accounting information in a corporate governance setting," Accounting, Organizations and Society, Elsevier, vol. 39(8), pages 575-589.
    18. Arena, Marika & Arnaboldi, Michela & Azzone, Giovanni, 2010. "The organizational dynamics of Enterprise Risk Management," Accounting, Organizations and Society, Elsevier, vol. 35(7), pages 659-675, October.
    19. Nuno Castanheira & Lúcia Lima Rodrigues & Russell Craig, 2009. "Factors associated with the adoption of risk-based internal auditing," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(1), pages 79-98, December.
    20. Gerrit Sarens & Joe Christopher & Mahbub Zaman, 2013. "A Study of the Informal Interactions between Audit Committees and Internal Auditors in Australia," Australian Accounting Review, CPA Australia, vol. 23(4), pages 307-329, December.
    21. Miller, Peter & O'Leary, Ted, 1987. "Accounting and the construction of the governable person," Accounting, Organizations and Society, Elsevier, vol. 12(3), pages 235-265, April.
    22. Joe Christopher & Gerrit Sarens & Philomena Leung, 2009. "A critical analysis of the independence of the internal audit function: evidence from Australia," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 22(2), pages 200-220, January.
    23. Douglas F. Prawitt & Nathan Y. Sharp & David A. Wood, 2012. "Internal Audit Outsourcing and the Risk of Misleading or Fraudulent Financial Reporting: Did Sarbanes†Oxley Get It Wrong?," Contemporary Accounting Research, John Wiley & Sons, vol. 29(4), pages 1109-1136, December.
    24. Everett, Jeff & Tremblay, Marie-Soleil, 2014. "Ethics and internal audit: Moral will and moral skill in a heteronomous field," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 25(3), pages 181-196.
    25. Jeffrey Cohen & Ganesh Krishnamoorthy & Arnold M. Wright, 2002. "Corporate Governance and the Audit Process," Contemporary Accounting Research, John Wiley & Sons, vol. 19(4), pages 573-594, December.
    26. Arena, Marika & Arnaboldi, Michela & Palermo, Tommaso, 2017. "The dynamics of (dis)integrated risk management: a comparative field study," LSE Research Online Documents on Economics 84285, London School of Economics and Political Science, LSE Library.
    27. Melanie Roussy & Marion Brivot, 2016. "Internal audit quality: a polysemous notion?," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 29(5), pages 714-738, June.
    28. Hans Englund & Jonas Gerdin & Gun Abrahamsson, 2013. "Accounting ambiguity and structural change," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 26(3), pages 423-448, March.
    29. Christensen, Mark & Skærbæk, Peter, 2010. "Consultancy outputs and the purification of accounting technologies," Accounting, Organizations and Society, Elsevier, vol. 35(5), pages 524-545, July.
    30. Alessandro Carretta & Franco Fiordelisi & Paola Schwizer, 2017. "Risk Culture in Banking," Palgrave Macmillan Studies in Banking and Financial Institutions, Palgrave Macmillan, number 978-3-319-57592-6, September.
    31. Mikes, Anette, 2011. "From counting risk to making risk count: Boundary-work in risk management," Accounting, Organizations and Society, Elsevier, vol. 36(4), pages 226-245.
    32. Norman, Carolyn Strand & Rose, Anna M. & Rose, Jacob M., 2010. "Internal audit reporting lines, fraud risk decomposition, and assessments of fraud risk," Accounting, Organizations and Society, Elsevier, vol. 35(5), pages 546-557, July.
    33. G. Sarens & I. De Beelde, 2006. "Interaction between internal auditors and senior management: A qualitative analysis of expectations and perceptions," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/358, Ghent University, Faculty of Economics and Business Administration.
    34. Free, Clinton & Salterio, Steven E. & Shearer, Teri, 2009. "The construction of auditability: MBA rankings and assurance in practice," Accounting, Organizations and Society, Elsevier, vol. 34(1), pages 119-140, January.
    35. Barbara Arel & Cathy Beaudoin & Anna Cianci, 2012. "The Impact of Ethical Leadership, the Internal Audit Function, and Moral Intensity on a Financial Reporting Decision," Journal of Business Ethics, Springer, vol. 109(3), pages 351-366, September.
    36. Christ, Margaret H. & Masli, Adi & Sharp, Nathan Y. & Wood, David A., 2015. "Rotational internal audit programs and financial reporting quality: Do compensating controls help?," Accounting, Organizations and Society, Elsevier, vol. 44(C), pages 37-59.
    37. Covaleski, Mark A. & Dirsmith, Mark W. & Rittenberg, Larry, 2003. "Jurisdictional disputes over professional work: the institutionalization of the global knowledge expert," Accounting, Organizations and Society, Elsevier, vol. 28(4), pages 323-355, May.
    38. Roussy, Mélanie, 2013. "Internal auditors’ roles: From watchdogs to helpers and protectors of the top manager," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 24(7), pages 550-571.
    39. Vaivio, Juhani, 1999. "Examining "The quantified customer"," Accounting, Organizations and Society, Elsevier, vol. 24(8), pages 689-715, November.
    40. Power, Michael, 1996. "Making things auditable," Accounting, Organizations and Society, Elsevier, vol. 21(2-3), pages 289-315.
    41. Jenny Stewart & Nava Subramaniam, 2010. "Internal audit independence and objectivity: emerging research opportunities," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(4), pages 328-360, April.
    42. Alessio Cornia & Kerstin Dressel & Patricia Pfeil, 2016. "Risk cultures and dominant approaches towards disasters in seven European countries," Journal of Risk Research, Taylor & Francis Journals, vol. 19(3), pages 288-304, March.
    43. Patrick John Ring & Cormac Bryce & Ricky McKinney & Rob Webb, 2016. "Taking notice of risk culture -- the regulator’s approach," Journal of Risk Research, Taylor & Francis Journals, vol. 19(3), pages 364-387, March.
    44. Laura de Zwaan & Jenny Stewart & Nava Subramaniam, 2011. "Internal audit involvement in enterprise risk management," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(7), pages 586-604, July.
    45. Paul Collier & Mahbub Zaman, 2005. "Convergence in European Corporate Governance: the audit committee concept," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(6), pages 753-768, November.
    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. Andrea Kampmann & Burkhard Pedell, 2022. "Using Storytelling to Promote Organizational Resilience: An Experimental Study of Different Forms of Risk Communication," Schmalenbach Journal of Business Research, Springer, vol. 74(4), pages 695-725, December.
    2. Bernhard Streicher & Moritz Bielefeld & Eric Eller, 2023. "The Risk Culture Framework: Introducing an Integrative Framework for Holistic Risk Analysis," SAGE Open, , vol. 13(3), pages 21582440231, August.
    3. Ghafoori, Eraj & Mata, Fernanda & Lauren, Nita & Faulkner, Nick & Tear, Morgan J., 2023. "Measuring risk culture in finance: Development of a comprehensive measure," Journal of Banking & Finance, Elsevier, vol. 148(C).

    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. Mélanie Roussy & Alexandre Perron, 2018. "New Perspectives in Internal Audit Research: A Structured Literature Review," Accounting Perspectives, John Wiley & Sons, vol. 17(3), pages 345-385, September.
    2. Mélanie Roussy & Michelle Rodrigue, 2018. "Internal Audit: Is the ‘Third Line of Defense’ Effective as a Form of Governance? An Exploratory Study of the Impression Management Techniques Chief Audit Executives Use in Their Annual Accountability," Journal of Business Ethics, Springer, vol. 151(3), pages 853-869, September.
    3. Thiéry, Stéphanie & Lhuillery, Stephane & Tellechea, Marion, 2023. "How can governance, human capital, and communication practices enhance internal audit quality?," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 52(C).
    4. Isabel Z. Wang & Neil Fargher, 2017. "The effects of tone at the top and coordination with external auditors on internal auditors’ fraud risk assessments," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(4), pages 1177-1202, December.
    5. 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.
    6. Nathanael Betti & Steven DeSimone & Joy Gray, 2022. "The impacts of the use of data analytics and the performance of consulting activities on perceived internal audit quality," Working Papers 2202, College of the Holy Cross, Department of Economics.
    7. Christina Vadasi & Michalis Bekiaris & Andreas Andrikopoulos, 2021. "Internal Audit Function Quality and Corporate Governance: The Case of Greece," Multinational Finance Journal, Multinational Finance Journal, vol. 25(1-2), pages 1-61, March - J.
    8. Steven DeSimone & Giuseppe D’Onza & Gerrit Sarens, 2019. "Correlates of Internal Audit Function Maturity," Working Papers 1905, College of the Holy Cross, Department of Economics.
    9. Halis Kiral & Hakan Karabacak, 2020. "Resolution of the Internal Audit-Based Role Conflicts in Risk Management: Evidence from Signaling Game Analysis," Group Decision and Negotiation, Springer, vol. 29(5), pages 823-841, October.
    10. Christ, Margaret H. & Masli, Adi & Sharp, Nathan Y. & Wood, David A., 2015. "Rotational internal audit programs and financial reporting quality: Do compensating controls help?," Accounting, Organizations and Society, Elsevier, vol. 44(C), pages 37-59.
    11. Daniela Argento & Timurs Umans & Patricia Håkansson & Annika Johansson, 2018. "Reliance on the internal auditors’ work: experiences of Swedish external auditors," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 29(3), pages 295-325, December.
    12. Sarens, Gerrit & De Beelde, Ignace & Everaert, Patricia, 2009. "Internal audit: A comfort provider to the audit committee," The British Accounting Review, Elsevier, vol. 41(2), pages 90-106.
    13. Pflueger, Dane, 2016. "Knowing patients: The customer survey and the changing margins of accounting in healthcare," Accounting, Organizations and Society, Elsevier, vol. 53(C), pages 17-33.
    14. Steven DeSimone & Giuseppe D’Onza & Gerrit Sarens, 2021. "Correlates of internal audit function involvement in sustainability audits," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 25(2), pages 561-591, June.
    15. Wan-Hussin, Wan Nordin & Fitri, Hadiati & Salim, Basariah, 2021. "Audit committee chair overlap, chair expertise, and internal auditing practices: Evidence from Malaysia," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 44(C).
    16. Al Shbail, Mohannad & Salleh, Zalailah & Mohd Nor, M. N., 2018. "Antecedents of burnout and its relationship to internal audit quality," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(4), pages 789-817, August.
    17. O'Dwyer, Brendan & Owen, David & Unerman, Jeffrey, 2011. "Seeking legitimacy for new assurance forms: The case of assurance on sustainability reporting," Accounting, Organizations and Society, Elsevier, vol. 36(1), pages 31-52, January.
    18. Steinbart, Paul John & Raschke, Robyn L. & Gal, Graham & Dilla, William N., 2018. "The influence of a good relationship between the internal audit and information security functions on information security outcomes," Accounting, Organizations and Society, Elsevier, vol. 71(C), pages 15-29.
    19. Kaifala, Gabriel B. & Paisey, Catriona & Paisey, Nicholas J., 2021. "The UK pensions landscape – A critique of the role of accountants and accounting technologies in the treatment of social and societal risks," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 75(C).
    20. Dean Neu & Jeff Everett & Abu Shiraz Rahaman, 2013. "Internal Auditing and Corruption within Government: The Case of the Canadian Sponsorship Program," Contemporary Accounting Research, John Wiley & Sons, vol. 30(3), pages 1223-1250, September.

    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:kap:jbuset:v:162:y:2020:i:1:d:10.1007_s10551-018-3969-0. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.