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Article
Publication date: 1 December 1997

John D. Tongren

Internal auditors are struggling to maintain their identity and purpose as the organizations they audit undergo drastic changes. Total quality management, business process…

Abstract

Internal auditors are struggling to maintain their identity and purpose as the organizations they audit undergo drastic changes. Total quality management, business process reengineering, globalization, and self‐directed teams are dismantling hierarchical command and control structures. Advances in information technology continuously render control procedures obsolete. The ‘value’ of traditional internal audit is seriously questioned from the board room to the show room. CoActive audit is an internal audit model designed for team/technology based organization cultures, where the focus is on process enhancement rather than assessment and reporting. It provides synergistic solutions to real problems, rather than a quasi‐independent appraisal offering recommendations of potentially marginal value. Auditing has its origins in antiquity, apparently when rulers with wealth had the objective of maintaining their wealth by detecting fraud on the part of their servants. While external auditing was originally formulated with the same objective, through the years it changed its primary objective to emphasize the ‘professional review of financial statements by an independent expert, so that a professional opinion indicating that financial condition and results of operation have been fairly presented can be given.’ While internal auditing formulated its objective to ‘assist members of the organization in the effective discharge of their responsibilities,’ it continued the basic doctrine that auditing is an expert, independent, appraisal function. While many internal auditors today keep auditing as they have in the past, the organizations they are auditing are undergoing drastic changes. Total Quality Management, Self Directed Teams, and Business Process Reengineering are dismantling the old hierarchical command and control systems that depended on auditors to verify compliance. Advances in Information Technology have rendered manual control procedures obsolete. While most internal auditors have successfully made the transition from a reactive audit process that basically reported on history to a proactive approach based on risk assessment and focused on the present, the changes occurring within our organizations demand even more fundamental changes. Contemporary internal auditors openly acknowledge that they feel change must occur within the internal auditing community, and these leaders are venturing forward trying new philosophies and approaches. CoActive Audit is a combination of these new philosophies and methodologies, with its roots in the teachings of the primary management visionaries of the times. It is a vehicle to help internal audit grow, to re‐energize, to expand both its reach and grasp. It is about change, about recognizing the world has drastically changed, about realizing that some of our most basic assumptions are no longer valid, about understanding that some of our codified standards may hinder rather than help, and about replacing the old that is no longer appropriate with a new that is. It is time to focus on enhancing internal control, not merely reporting on it. It is time to build control into business processes, not simply assessing compliance with policies and procedures. It is time to recognize that the traditional internal audit methodology may be counterproductive to the goal of ensuring a reliable internal control system. It is time for CoActive Audit: the next critical step for internal audit. CoActive Audit enhances management control processes using today's management philosophies and methodologies. It represents a fundamental transformation of traditional internal audit philosophy, a 180 shift in mental models and paradigms. The essential components are an audit approach that is: Concurrent — rather than historical; Collaborative — rather than autonomous; Consultative — rather than judgmental; Client‐based — rather than standards‐based; A Catalyst — rather than an inhibitor.

Details

Managerial Finance, vol. 23 no. 12
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 1 February 1993

Michael B. Adams

Describes how systems theory, and in particular “hard”and “soft” systems modelling, can provide a framework forthe study of internal control and auditing inside…

Abstract

Describes how systems theory, and in particular “hard” and “soft” systems modelling, can provide a framework for the study of internal control and auditing inside organizations. Concludes that useful empirical research and case study work can be carried out using “hard” and “soft” systems modelling. Such research should make a positive contribution to the body of knowledge concerning the nature of the internal control and the practice of internal audit in organizations.

Details

Managerial Auditing Journal, vol. 8 no. 2
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 1 August 1995

Zabihollah Rezaee

There have been new interests in internal control and the COSOreport represents a milestone in the evolution of internal control. Thebusiness community and accounting…

16384

Abstract

There have been new interests in internal control and the COSO report represents a milestone in the evolution of internal control. The business community and accounting profession reactions to the COSO report have been positive in the USA. The provisions of the COSO report help organizations to understand and appreciate better the value and importance of internal control; they also expand the elements and components of internal control, and provide guidelines for establishing criteria against which all entities can assess the adequacy and effectiveness of their internal control systems. The COSO report should provide a great implication for organizations′ internal audit functions and have a significant positive impact on the better recognition of the proactive role of internal auditors.

Details

Managerial Auditing Journal, vol. 10 no. 6
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 1 March 1995

Randal J. Elder, Susan C. Kattelus and D. Dewey Ward

There is an increased emphasis on internal control in the governmental sector. We compare finance officer assessments of internal control to auditor assessments for a…

303

Abstract

There is an increased emphasis on internal control in the governmental sector. We compare finance officer assessments of internal control to auditor assessments for a sample of Michigan municipalities. On average, the finance officers' assessments of their control systems were more favorable than the assessments made by auditors from a regional CPA firm with a large governmental practice, suggesting that auditor reports on internal control may result in a more conservative evaluation of the control system than reports provided by management. One measure of the effectiveness of the internal control system is its ability to prevent errors. We compare the finance officer and auditor assessments of internal control to the number of audit adjustments as an objective measure of the accuracy of the control assessments. The internal control assessments made by auditors were significantly more highly correlated with the number of audit adjustments than those made by finance officers. This suggests that the accuracy of internal control reports may be improved if the reports are prepared by auditors.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 7 no. 3
Type: Research Article
ISSN: 1096-3367

Article
Publication date: 28 November 2022

Hafiez Sofyani, Haslida Abu Hasan and Zakiah Saleh

This study investigates internal control implementation contribution to quality management at higher education institutions (HEIs).

Abstract

Purpose

This study investigates internal control implementation contribution to quality management at higher education institutions (HEIs).

Design/methodology/approach

This study employed a qualitative method by conducting semi-structured interviews. The research respondents (interviewees) consisted of internal auditors, HEI management members and accreditation assessors of Indonesian HEIs. A total of 15 respondents were successfully interviewed to collect the data; 12 were from different HEIs, and 3 were from the HEI accreditation board.

Findings

This study deduced that internal control implementation could contribute to HEI quality management and improvement if integrated with other control policies, such as internal quality assurance, performance measurement systems and performance-based budgeting. By doing so, internal control corroborates total quality management (TQM) implementation within HEIs since it promotes employee empowerment and supervision, reduces budget wastage, increases the achievement of budget targets on output and outcome of programs and activities, enhances strategic and integrated system practices, provides reliable information for better decision-making, and promotes effective communication and coordination and good leadership culture.

Practical implications

The current study presents beneficial suggestions for HEI management on how internal control contributes to quality management at HEIs.

Originality/value

As suggested by Chalmers et al. (2019), most studies related to internal control were conducted in profit-oriented organisation settings, i.e. companies, and focused on their impact on economic aspects, such as profitability, cost efficiency and fraud mitigation. Meanwhile, internal control-related studies in the context of non-profit-oriented organisations, such as HEIs, and their role in non-economic aspects, in this case, the quality management in HEIs, is still lacking.

Details

The TQM Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1754-2731

Keywords

Open Access
Article
Publication date: 29 November 2022

Ana Lúcia Lima Gadelha, Luis Borges Gouveia and Anabela Mesquita Sarmento

This article aims to identify management practices that evidence how internal control have been considered essential, from the edition of the State Constitutional…

Abstract

Purpose

This article aims to identify management practices that evidence how internal control have been considered essential, from the edition of the State Constitutional Amendment no. 75 of 2012, within the public administration of the executive branch of the State of Ceará, during the period 2012–2021.

Design/methodology/approach

The study relates the identified management practices to COSO (The Committee of Sponsoring Organizations) methodology “Internal Environment” component categories. The research is classified as basic, exploratory and bibliographic, on the theme of internal control in scientific articles published between 2015 and 2021, and documental, carried out through official documents, including the 27 Brazilian constitutions.

Findings

Existence of management practices that corroborate the essentiality of internal control in Ceará.

Research limitations/implications

The study is limited to evidencing the control practices implemented in Ceará, not evaluating them as to their quality.

Practical implications

Contributions on control on constitutional-legal bases for other Brazilian Federation States.

Social implications

Possibility of introducing the research theme into various branches of scientific knowledge, such as political science and contributing to public organizations to implement policies with the proper application of resources for the benefit of society.

Originality/value

The originality of the research is in demonstrating the essentiality of internal control in the State of Ceará, from the edition of management acts performed by the executive branch, based on Constitutional Amendment 75 of 2012, which did not become a dead letter of the law, enabling other states of the federation to do the same.

Details

Revista de Gestão, vol. 30 no. 1
Type: Research Article
ISSN: 1809-2276

Keywords

Book part
Publication date: 21 November 2018

Audrey A. Gramling, Arnold Schneider and Lori Shefchik Bhaskar

This study’s purpose is to examine whether providing prior consulting services influences internal auditors’ subsequent assessments when providing assurance services to…

Abstract

This study’s purpose is to examine whether providing prior consulting services influences internal auditors’ subsequent assessments when providing assurance services to assist management in its assessment of internal control over financial reporting. A behavioral experiment is used, with internal auditors as participants. We provide some evidence that internal auditors who perform prior consulting services are less likely than others to conclude that an identified control deficiency is a material weakness, but only when the deficiency is directly related to the prior consulting services performed. Limitations include relatively small sample sizes and manipulation check failure rates that, although consistent with several prior studies, are somewhat high. If internal auditors have provided consulting services, they may want to consider limiting the assurance services provided to management that are more directly related to their consulting services. While prior studies have examined the effects of internal auditors’ role in designing internal controls on subsequent services, this is the first study to focus on the impact of providing internal audit consulting services on subsequent assurance services.

Book part
Publication date: 4 October 2018

Antonio Davila, Mahendra Gupta and Richard J. Palmer

Internal control mechanisms are fundamental to organizational governance; particularly, to the agency relationship associated with decentralization of decision rights…

Abstract

Internal control mechanisms are fundamental to organizational governance; particularly, to the agency relationship associated with decentralization of decision rights. Management accounting and organizational literatures provide conflicting predictions on the association between decentralization and internal controls, with some research arguing that internal controls be tightened to mitigate the risks associated with greater decentralization of decision rights while other work avers that tighter internal controls defeat the purposes of decentralization. In this chapter, we argue that managers choose these two organizational design variables jointly. Capitalizing on a unique database of control practices in the purchasing and payment process within the procurement function, this chapter examines the relationship between control tightness – a critical characteristic of internal controls – and decentralization. Using a simultaneous equation model, the study finds that decentralization and internal control design are endogenously determined. Tight control is negatively associated with the level of decentralization, while decentralization has a positive effect on the tightness of control. These results reconcile the apparently contradictory results relating these two variables. The chapter also finds that decentralization and tight control mechanisms operate both independently and synergistically to improve performance.

Details

Performance Measurement and Management Control: The Relevance of Performance Measurement and Management Control Research
Type: Book
ISBN: 978-1-78756-469-5

Keywords

Book part
Publication date: 18 January 2021

Clint Zammit, Simon Grima and Y. Murat Kizilkaya

The Public Sector is usually assumed to have a risk avoidance culture, with a reactive rather than proactive approach towards the management. However, an improved holistic…

Abstract

The Public Sector is usually assumed to have a risk avoidance culture, with a reactive rather than proactive approach towards the management. However, an improved holistic approach seems to be required, especially when considering the complexity and size of the Public Sector, and the challenges it faces to connect the services, clients and the different levels of governance.

Within this chapter, the authors lay out a maturity level evaluation of Governance, Risk Management and Compliance (GRC) within the Maltese Public Sector. Through documentation analysis of the available literature on the subject, the authors determine the principal themes required to develop an effective GRC practice across the Public Sector. The authors then design statements based on the identified GRC themes and administer it using an online survey tool to Public employees across different Ministries, Departments, Agencies and Entities, in order to obtain their perception. This is in order to determine gaps, weaknesses or limiting factors towards the implementation of an effective GRC.

The results show that, although, there is a substantial percentage of scepticism and few disagreements towards some of the statements, especially those which related to Risk Management (RM) and Internal Auditing (IA), the majority of Public Sector bodies do in fact show high standards of GRC practices integrated and present in their day-to-day operations and internal environment, showing that there is a well-developed Governance, Compliance and Control structure and Internal Audit function across the Sector.

However, the perception of participants is that the RM function is the least developed area. IA needs some improvement especially where trust on advice is involved.

Details

Contemporary Issues in Public Sector Accounting and Auditing
Type: Book
ISBN: 978-1-83909-508-5

Keywords

Article
Publication date: 8 July 2021

Ian Burt and Theresa Libby

This paper aims to examine whether increasing the salience of the internal auditor’s professional identity, defined by the expectations of their professional group…

Abstract

Purpose

This paper aims to examine whether increasing the salience of the internal auditor’s professional identity, defined by the expectations of their professional group, increases internal auditors’ judgments of the severity of internal control concerns when their organizational identity is high.

Design/methodology/approach

This paper tests the hypothesis using a laboratory experiment with internal auditors as participants.

Findings

The results support the hypothesis that professional identity salience moderates the relation between organizational identity and the assessed severity of identified internal control weaknesses. Increasing the salience of professional identity results in a more severe assessment of identified internal control weaknesses when organizational identity is high than when it is low.

Originality/value

Prior research in the lab and in the field provides mixed results about the impact of organizational identity on internal auditors’ judgments of the severity of identified internal control concerns. This paper contributes to the discussion on this issue. In addition, the results have implications for the debate about the benefits and costs of in-house versus out-sourced internal audit functions.

Details

Managerial Auditing Journal, vol. 36 no. 4
Type: Research Article
ISSN: 0268-6902

Keywords

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