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Internal audit and financial reporting in the Spanish banking industry


  • Ester Gras-Gil
  • Salvador Marin-Hernandez
  • Domingo Garcia-Perez de Lema


Purpose - The purpose of this paper is to examine the relationship between a firm's internal audit function (IAF) and the quality of its financial reporting. Since regulations on corporate governance were introduced, numerous national and international bodies have emphasized the fundamental role of the IAF in the financial reporting process, especially since it generally leads to higher quality reporting. Design/methodology/approach - The paper uses questionnaires sent to internal audit directors of Spanish banks. Findings - Banks with high quality financial reporting have greater collaboration between internal and external auditors in the annual audit. Greater involvement of internal audit in reviewing financial reporting leads to improved quality financial reporting. Research limitations/implications - Besides the usual caveats of survey research, there are limitations to this study. First, the problem of response bias may exist. Second, the 66 per cent survey response rate may mean that respondents have larger or better-developed internal audit functions, affording them more opportunity or motivation to respond to the survey. Hence, the results obtained through the survey may not be generalizable to non-respondents. Practical implications - The findings are relevant for bank regulators, management, boards of directors, and investors. In the current discussion on transparency, integrity and quality of financial reporting, these findings help define the issues. Originality/value - Previous empirical studies analyse the quality of financial reporting with actors in the corporate governance mosaic (board of directors, audit committee and external audit), but they do not do so directly with the IAF. This paper extends prior banking literature that analyses quality financial reporting along with other variables, but not internal audit.

Suggested Citation

  • Ester Gras-Gil & Salvador Marin-Hernandez & Domingo Garcia-Perez de Lema, 2012. "Internal audit and financial reporting in the Spanish banking industry," Managerial Auditing Journal, Emerald Group Publishing, vol. 27(8), pages 728-753, August.
  • Handle: RePEc:eme:majpps:v:27:y:2012:i:8:p:728-753

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    References listed on IDEAS

    1. Daniel Perez & Vicente Salas-Fumas & Jesus Saurina, 2008. "Earnings and Capital Management in Alternative Loan Loss Provision Regulatory Regimes," European Accounting Review, Taylor & Francis Journals, vol. 17(3), pages 423-445.
    2. Asokan Anandarajan & Iftekhar Hasan & Cornelia McCarthy, 2007. "Use of loan loss provisions for capital, earnings management and signalling by Australian banks," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 47(3), pages 357-379.
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    5. Zarza Herranz, C‚sar & L¢pez Iturriaga, F‚lix J. & L¢pez-Iturriaga, F‚lix, 2009. "Gobierno corporativo y factores determinantes del cambio de auditoria en las empresas no financieras espa¤olas," Working Papers "New Trends on Business Administration". Documentos de Trabajo "Nuevas Tendencias en Dirección de Empresas". 2009-09, Interuniversity Research Master and Doctorate Program (with a quality mention of ANECA) on "Business Economics", Universities of Valladolid, Burgos, Salamanca and León (Spain). Until 2008, Interuniversity Doctorate Program (with a quality mention of ANECA) “New trends in Business Administration”, Universities of Valladolid, Burgos, and Salamanca (Spain). Master en Investigación y Programa de Docto.
    6. Cornett, Marcia Millon & McNutt, Jamie John & Tehranian, Hassan, 2006. "Performance Changes around Bank Mergers: Revenue Enhancements versus Cost Reductions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1013-1050, June.
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    9. Beaver, William H. & McNichols, Maureen F. & Nelson, Karen K., 2003. "Management of the loss reserve accrual and the distribution of earnings in the property-casualty insurance industry," Journal of Accounting and Economics, Elsevier, vol. 35(3), pages 347-376, August.
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    11. Nwachukwu, Saviour L. S. & Vitell Jr., Scott J. & Gilbert, Faye W. & Barnes, James H., 1997. "Ethics and Social Responsibility in Marketing: An Examination of the Ethical Evaluation of Advertising Strategies," Journal of Business Research, Elsevier, vol. 39(2), pages 107-118, June.
    12. 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.
    13. Paul Coram & Colin Ferguson & Robyn Moroney, 2008. "Internal audit, alternative internal audit structures and the level of misappropriation of assets fraud," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(4), pages 543-559.
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    Cited by:

    1. Yahya Ali Al-Matari & Sallahuddin Hassan & Hassan Alaaraj, 2016. "Application of Basel Committee’s New Standards of Internal Audit Function: A Road Map towards Banks’ Performance," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1014-1018.
    2. repec:eee:spacre:v:18:y:2015:i:2:p:174-181 is not listed on IDEAS


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