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The purpose of this study is to explore the voluntary use of internal audit by Australian publicly listed companies and to identify factors that lead listed companies to have an internal audit function.

Drawing on the Institute of Internal Auditors' definition of internal auditing, the paper predicts that internal audit use is associated with factors related to risk management, strong internal controls and strong corporate governance. To test the predictions, the study combines data from a survey of listed companies with information from corporate annual reports. The paper also provides descriptive information on the use of internal audit.

The results indicate that only one‐third of the sample companies use internal audit. While size appears to be the dominant driver, there is also a strong association between internal audit and the level of commitment to risk management. However, the study finds only weak support for an association between the use of internal audit and strong corporate governance.

A limitation of our study is that some of the variables in the model may not be good proxies for the factors being measured. Refinement of the model and the variables used provides an opportunity for future research.

The limited use of internal audit by Australian companies has important implications for sound corporate governance.

This is the first study that identifies factors associated with the use of internal audit by Australian listed companies.

The purpose of this paper is to examine the effectiveness of voluntary governance mechanisms in Australia.

This study identifies similar choices of corporate governance by Australian firms and tests the effectiveness of the choices made based on the earnings quality of reported firms. Cluster analysis is conducted using governance best practice variables, firm size and an earnings quality variable.

This paper’s results support the voluntary governance approach for smaller firms, but suggest that mandatory governance requirements could be beneficial for larger firms. Evidence suggests that a benefit accrues for larger firms with the adoption of governance best practice. Cluster analysis indicates that larger firms tend to exhibit higher levels of adoption of governance best practice than smaller firms.

This paper adds to the literature by providing important information regarding the suitability of adoption of voluntary governance mechanisms in Australia.

The purpose of this paper is to explore the ethical decision making of internal auditors and the impact of corporate governance mechanisms thereon. It also aims to explore whether ethical decision making is influenced by years of experience in internal auditing.

A total of 66 internal auditors were presented with five ethical dilemmas. For each scenario, a key element of corporate governance was manipulated to assess its impact on ethical decision making. These were audit committee support; management integrity regarding accounting policies; management integrity regarding pressure on internal audit; external auditor characteristics; and organisational code of conduct.

Participants were generally sensitive to ethical dilemmas but were not always confident that their peers would act ethically. A higher quality external audit function was positively associated with internal auditors' ethical decision making. However, the strength of other governance mechanisms did not appear to influence ethical decision making. Finally, more experienced internal auditors adopted a more ethical stance in some cases.

The sample was self‐selected and may not be representative of internal auditors in general. The lack of significant results may be due to insufficient variability in the manipulations and/or an oversimplification of reality in our scenarios.

The study has implications for the internal audit profession with respect to training and the provision of support mechanisms to strengthen the ability of internal auditors to withstand pressure when dealing with ethical dilemmas.

This paper is the first to study whether the strength of other governance mechanisms influences internal auditors' ethical decision making.