The Accounting Department would like to invite you to a research seminar by Lawrence Abbott from University of Wisconsin-Milwaukee. He will present his coauthored paper with Susan Parker: Additional Evidence on the Association between Internal Audit Function Quality and Financial Reporting Quality.
Title: Additional Evidence on the Association between Internal Audit Function Quality and Financial Reporting Quality
Abstract: We examine a two-factor interactive model of internal audit function (IAF) quality, comprised of competence and independence, to provide evidence on the effectiveness of IAFs as financial reporting monitors. Our competence variable is based upon average hourly IAF compensation. We incorporate three facets of independence: degree of audit committee oversight, IAF management training grounds, and IAF outsourcing. As stand-alone variables, these measures of competence and independence are generally not associated with financial reporting quality. However, several significant relations exist between our interactive competence-independence measures and financial reporting quality. Our tests support the hypothesis that the combined presence of competence and independence is a necessary antecedent to effective IAF financial reporting monitoring. These findings provide insight into the mixed results regarding the association between IAF quality and financial reporting quality documented in prior literature. Our study extends the understanding of IAF quality determinants in the realm of financial reporting monitoring.
Copies of the paper are available upon request.