A Post-SOX Examination of Factors Associated with the Size of Internal Audit Functions

ABSTRACT

This study develops and tests a conceptual model articulating factors associated with internal audit function size in the post-SOX era. These factors include audit committee characteristics, internal audit characteristics and mission, internal audit activities performed by others (including outsourced providers and other divisions within the organization), and organization characteristics. Results from a survey of 173 public and private companies reveal that internal audit function size is positively associated with: (1) better audit committee governance, (2) greater organizational experience of the chief audit executive, (3) missions involving IT auditing, (4) the use of sophisticated audit technologies, (5) the use of a staffing model in which internal audit is used for rotational leadership development, (6) organization size, and (7) the number of foreign subsidiaries that the organization possesses. Further, internal audit function size is inversely associated with: (1) the percentage of internal audit employees that are Certified Internal Auditors, and (2) the extent of assurance and compliance activities outsourced to outsiders. These results contribute to prior literature on internal audit function size by considering a variety of factors that are associated with internal audit function size in the contemporary era.

Keywords:  internal audit, resource allocation, budgeting, staffing

Urton L. Anderson is a Professor at The University of Texas at Austin; Margaret H. Christ is an Assistant Professor at The University of Georgia; and Karla M. Johnstone is an Associate Professor and Larry E. Rittenberg is a Professor Emeritus, both at the University of Wisconsin–Madison.

Source : Urton L. Anderson, Margaret H. Christ, Karla M. Johnstone, and Larry E. Rittenberg (2012) A Post-SOX Examination of Factors Associated with the Size of Internal Audit Functions. Accounting Horizons: June 2012, Vol. 26, No. 2, pp. 167-191.