Internal audit involvement in enterprise risk management
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The authors acknowledge the helpful comments of two anonymous reviewers, Ken Trotman and participants at the Annual Conference of the Accounting Association of Australia and New Zealand (AFAANZ), Sydney, 2008. The authors also thank the Institute of Internal Auditors Australia for their help in distributing the questionnaire and the internal auditors who gave up their time to participate in the study. Abstract: 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.
Managerial Auditing Journal
Auditing and Accountability