Factors affecting the voluntary use of internal audit: evidence from the UK
<h3>Purpose</h3><p dir="ltr">This study aims to identify the factors that lead non-financial companies listed in the UK to use an internal audit function (IAF) as a monitoring mechanism. Although the use of an IAF in the UK is voluntary, no prior research has examined the...
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2018
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| _version_ | 1864513525905358848 |
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| author | Hazem Ramadan Ismael (18091171) |
| author2 | Clare Roberts (16668714) |
| author2_role | author |
| author_facet | Hazem Ramadan Ismael (18091171) Clare Roberts (16668714) |
| author_role | author |
| dc.creator.none.fl_str_mv | Hazem Ramadan Ismael (18091171) Clare Roberts (16668714) |
| dc.date.none.fl_str_mv | 2018-03-20T03:00:00Z |
| dc.identifier.none.fl_str_mv | 10.1108/maj-08-2016-1425 |
| dc.relation.none.fl_str_mv | https://figshare.com/articles/journal_contribution/Factors_affecting_the_voluntary_use_of_internal_audit_evidence_from_the_UK/25331326 |
| dc.rights.none.fl_str_mv | CC BY 4.0 info:eu-repo/semantics/openAccess |
| dc.subject.none.fl_str_mv | Commerce, management, tourism and services Accounting, auditing and accountability Economics Econometrics Corporate governance Agency theory Internal audit Audit committee Audit demand Internal control and risk management |
| dc.title.none.fl_str_mv | Factors affecting the voluntary use of internal audit: evidence from the UK |
| dc.type.none.fl_str_mv | Text Journal contribution info:eu-repo/semantics/publishedVersion text contribution to journal |
| description | <h3>Purpose</h3><p dir="ltr">This study aims to identify the factors that lead non-financial companies listed in the UK to use an internal audit function (IAF) as a monitoring mechanism. Although the use of an IAF in the UK is voluntary, no prior research has examined the drivers for using one.</p><h3>Design/methodology/approach</h3><p dir="ltr">Financial and non-financial data were collected from the annual reports of 332 UK non-financial companies listed on the London Stock Exchange (LSE) Main Market. Univariate tests and multivariate logistic regression tests were used to test the research hypotheses. A theoretical framework based on both agency theory and transaction cost economics (TCE) theory was used to explain the economic factors affecting the use of an IAF.</p><h3>Findings</h3><p dir="ltr">The study provides evidence that firm size, level of internal risks, agency problem between owners and managers and existence of an effective audit committee are associated with the existence of an IAF. Thus, the need to have strong internal control and risk management systems and to reduce both internal and external agency costs drives companies to have an IAF. These results suggest the importance of IAF as an internal corporate governance tool and the effectiveness of UK governance regulations in monitoring the effectiveness of internal control systems.</p><h3>Practical implications</h3><p dir="ltr">Given the importance of the IAF’s corporate governance role, the study provides some policy implications. Regulators should pay more attention to the issue of maintaining an IAF, especially by large companies, the relationship between the IAF and other governance parties, especially the audit committee, and the disclosure of more relevant information about the IAF’s characteristics and practices.</p><h3>Originality/value</h3><p dir="ltr">This is the first study to examine the factors affecting the existence of the IAF within the UK’s distinctive regulatory approach of “comply or disclose reasons”. Furthermore, it provides a theoretical framework that explains how both the agency theory and TCE theory can interpret the adoption of internal audit.</p><h2>Other Information</h2><p dir="ltr">Published in: Managerial Auditing Journal<br>License: <a href="https://creativecommons.org/licenses/by/4.0/" target="_blank">https://creativecommons.org/licenses/by/4.0/</a><br>See article on publisher's website: <a href="https://dx.doi.org/10.1108/maj-08-2016-1425" target="_blank">https://dx.doi.org/10.1108/maj-08-2016-1425</a></p> |
| eu_rights_str_mv | openAccess |
| id | Manara2_554f98ff89e24490aade95bf0013fa02 |
| identifier_str_mv | 10.1108/maj-08-2016-1425 |
| network_acronym_str | Manara2 |
| network_name_str | Manara2 |
| oai_identifier_str | oai:figshare.com:article/25331326 |
| publishDate | 2018 |
| repository.mail.fl_str_mv | |
| repository.name.fl_str_mv | |
| repository_id_str | |
| rights_invalid_str_mv | CC BY 4.0 |
| spelling | Factors affecting the voluntary use of internal audit: evidence from the UKHazem Ramadan Ismael (18091171)Clare Roberts (16668714)Commerce, management, tourism and servicesAccounting, auditing and accountabilityEconomicsEconometricsCorporate governanceAgency theoryInternal auditAudit committeeAudit demandInternal control and risk management<h3>Purpose</h3><p dir="ltr">This study aims to identify the factors that lead non-financial companies listed in the UK to use an internal audit function (IAF) as a monitoring mechanism. Although the use of an IAF in the UK is voluntary, no prior research has examined the drivers for using one.</p><h3>Design/methodology/approach</h3><p dir="ltr">Financial and non-financial data were collected from the annual reports of 332 UK non-financial companies listed on the London Stock Exchange (LSE) Main Market. Univariate tests and multivariate logistic regression tests were used to test the research hypotheses. A theoretical framework based on both agency theory and transaction cost economics (TCE) theory was used to explain the economic factors affecting the use of an IAF.</p><h3>Findings</h3><p dir="ltr">The study provides evidence that firm size, level of internal risks, agency problem between owners and managers and existence of an effective audit committee are associated with the existence of an IAF. Thus, the need to have strong internal control and risk management systems and to reduce both internal and external agency costs drives companies to have an IAF. These results suggest the importance of IAF as an internal corporate governance tool and the effectiveness of UK governance regulations in monitoring the effectiveness of internal control systems.</p><h3>Practical implications</h3><p dir="ltr">Given the importance of the IAF’s corporate governance role, the study provides some policy implications. Regulators should pay more attention to the issue of maintaining an IAF, especially by large companies, the relationship between the IAF and other governance parties, especially the audit committee, and the disclosure of more relevant information about the IAF’s characteristics and practices.</p><h3>Originality/value</h3><p dir="ltr">This is the first study to examine the factors affecting the existence of the IAF within the UK’s distinctive regulatory approach of “comply or disclose reasons”. Furthermore, it provides a theoretical framework that explains how both the agency theory and TCE theory can interpret the adoption of internal audit.</p><h2>Other Information</h2><p dir="ltr">Published in: Managerial Auditing Journal<br>License: <a href="https://creativecommons.org/licenses/by/4.0/" target="_blank">https://creativecommons.org/licenses/by/4.0/</a><br>See article on publisher's website: <a href="https://dx.doi.org/10.1108/maj-08-2016-1425" target="_blank">https://dx.doi.org/10.1108/maj-08-2016-1425</a></p>2018-03-20T03:00:00ZTextJournal contributioninfo:eu-repo/semantics/publishedVersiontextcontribution to journal10.1108/maj-08-2016-1425https://figshare.com/articles/journal_contribution/Factors_affecting_the_voluntary_use_of_internal_audit_evidence_from_the_UK/25331326CC BY 4.0info:eu-repo/semantics/openAccessoai:figshare.com:article/253313262018-03-20T03:00:00Z |
| spellingShingle | Factors affecting the voluntary use of internal audit: evidence from the UK Hazem Ramadan Ismael (18091171) Commerce, management, tourism and services Accounting, auditing and accountability Economics Econometrics Corporate governance Agency theory Internal audit Audit committee Audit demand Internal control and risk management |
| status_str | publishedVersion |
| title | Factors affecting the voluntary use of internal audit: evidence from the UK |
| title_full | Factors affecting the voluntary use of internal audit: evidence from the UK |
| title_fullStr | Factors affecting the voluntary use of internal audit: evidence from the UK |
| title_full_unstemmed | Factors affecting the voluntary use of internal audit: evidence from the UK |
| title_short | Factors affecting the voluntary use of internal audit: evidence from the UK |
| title_sort | Factors affecting the voluntary use of internal audit: evidence from the UK |
| topic | Commerce, management, tourism and services Accounting, auditing and accountability Economics Econometrics Corporate governance Agency theory Internal audit Audit committee Audit demand Internal control and risk management |