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Characteristics of statutory internal auditors and operating efficiency

Moon-Kyung Cho (School of Business, Yonsei University, Seoul, Korea, Republic of)
Ho-Young Lee (School of Business, Yonsei University, Seoul, Korea, Republic of)
Hyun-Young Park (School of Business Yonsei University, Seoul, Korea, Republic of)

Managerial Auditing Journal

ISSN: 0268-6902

Article publication date: 5 May 2015

1643

Abstract

Purpose

The purpose of this paper is to examine the effect of the characteristics of statutory internal auditors on operating efficiency.

Design/methodology/approach

This study investigates three characteristics pertaining to statutory internal auditors, namely, compensation, activity and expertise, based on 1,340 firm observations from 2009 to 2010 using publicly available disclosure data for Korean listed firms.

Findings

The authors find no evidence that statutory internal auditors’ compensation is positively associated with operating efficiency. This implies that compensation data on statutory internal auditors in Korea may not directly reflect their competence and ability to enhance operating efficiency. On the other hand, the authors find evidence for a positive association between full-time status for statutory internal auditors and operating efficiency and a positive association between the attendance at board meetings for statutory internal auditors and operating efficiency. The results also show a decrease in operating efficiency when statutory internal auditors are newly appointed. Finally, expertise of statutory internal auditors in financial or legal matters provides no advantage in terms of operating efficiency.

Practical implications

This study contributes to the extant literature on internal audit by examining the advisory role of statutory internal auditors and its effect on operating efficiency, which is one of the objectives established by the Committee of Sponsoring Organizations of the Treadway Commission.

Originality/value

While most prior research on internal audit depends on survey data from statutory internal auditors or experimental data based on a limited sample of firms, this study is based on a large sample of publicly available data of the Korean market.

Keywords

Citation

Cho, M.-K., Lee, H.-Y. and Park, H.-Y. (2015), "Characteristics of statutory internal auditors and operating efficiency", Managerial Auditing Journal, Vol. 30 No. 4/5, pp. 456-481. https://doi.org/10.1108/MAJ-05-2014-1037

Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

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