Bon a h, Annika; Eule ich, Ma c
A icle — Published Ve sion
In e nal audi ing's ole in p e en ing and de ec ing aud:
An empi ical analysis
In e na ional Jou nal o Audi ing
P o ided in Coope a ion wi h:
John Wiley & Sons
Sugges ed Ci a ion: Bon a h, Annika; Eule ich, Ma c (2024) : In e nal audi ing's ole in p e en ing
and de ec ing aud: An empi ical analysis, In e na ional Jou nal o Audi ing, ISSN 1099-1123, Wiley,
Hoboken, NJ, Vol. 28, Iss. 4, pp. 615-631,
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ORIGINAL ARTICLE
In e nal audi ing's ole in p e en ing and de ec ing aud: An
empi ical analysis
Annika Bon a h | Ma c Eule ich
Uni e si y o Duisbu g-Essen, Duisbu g,
Ge many
Co espondence
Ma c Eule ich, Uni e si y o Duisbu g-Essen,
Chai o In e nal Audi ing, Lo ha s asse
65, 47057, Duisbu g, Ge many.
Email: ma c.eule [email protected]
In e nal audi ing plays a pi o al ole in p e en ing and de ec ing audulen ac i i ies.
Howe e , he o ien a ion and ole o in e nal audi ing in dealing wi h aud isk can
a y signi ican ly ac oss di e en companies. This s udy examines he ela ionship
be ween he in e nal audi unc ion (IAF) and aud, p o iding new insigh s in o he
cu en p ac ices o in e nal audi ing. Using a su ey da ase comp ising esponses
om 275 Chie Audi Execu i es ac oss Ge many, Swi ze land and Aus ia, we in es-
iga e ac o s ha co ela e wi h an inc eased p opensi y o IAFs o engage in aud
p e en ion and de ec ion. Ou indings sugges ha a obus co po a e go e nance
en i onmen signi ican ly in luences he ex en o which he IAF is in ol ed in p e-
en ing and de ec ing aud. Shedding ligh on he posi ioning o in e nal audi ing
be ween managemen and he audi commi ee wi h espec o aud, ou esul s
show ha inc eased IAF in ol emen wi h managemen posi i ely a ec s he le el o
ac i i ies o p e en and de ec aud, while inc eased IAF in ol emen wi h he audi
commi ee has he opposi e e ec . Fu he mo e, we ind ha he p opensi y o IAFs
o engage in aud p e en ion and de ec ion inc eases when he IAF applies
echnology-based audi ing echniques o isk iden i ica ion. Ou esul s ha e implica-
ions o building app op ia e p o ec ion agains he s eadily inc easing isk o aud
wi hin o ganiza ions, while holis ically add essing he ambigui y ega ding he
esponsibili y o p e en ing and de ec ing aud.
KEYWORDS
co po a e go e nance, aud, in e nal audi ing
1|INTRODUCTION
In oday's inc easingly complex and demanding o ganiza ional s uc-
u es, aud is becoming mo e p e alen . This ise unde sco es he
impo ance o main aining and de eloping obus p o ec ions agains
aud isk. Unce ain y and dis up ion o en lead o es ablished p o-
cesses and con ols being ci cum en ed, c ea ing e ile g ound o
aud (Ka po , 2021). Expe s, such as he p esiden and CEO o he
Associa ion o Ce i ied F aud Examine s (ACFE), an icipa e a
signi ican inc ease in aud in he coming yea s (Do is, 2021), while
la ge accoun ing i ms emphasize he need o immedia e esponses
o his heigh ened isk exposu e h ough epo s and whi e pape s.
The ques ion o who is esponsible o p e en ing and de ec ing
aud egula ly comes up (e.g., Bake Tilly, 2013). The esponsibili y
o en alls on he IAF, he hi d line in he Th ee Lines Model (TLM)
(e.g., Eule ich, 2021). The IAF p o ides assu ance and insigh on go -
e nance adequacy and isk managemen e ec i eness (e.g. Eule ich &
Lohmann, 2022). While ips om a ious pa ies, such as employees,
Recei ed: 21 Feb ua y 2023 Re ised: 10 Oc obe 2023 Accep ed: 4 Decembe 2023
DOI: 10.1111/ijau.12342
This is an open access a icle unde he e ms o he C ea i e Commons A ibu ion-NonComme cial-NoDe i s License, which pe mi s use and dis ibu ion in any
medium, p o ided he o iginal wo k is p ope ly ci ed, he use is non-comme cial and no modi ica ions o adap a ions a e made.
© 2024 The Au ho s. In e na ional Jou nal o Audi ing published by John Wiley & Sons L d.
In J Audi . 2024;28:615–631. wileyonlinelib a y.com/jou nal/ijau 615
endo s o cus ome s, de ec mos aud cases, he IAF is o u mos
impo ance o o ganiza ions in dealing wi h he isk o aud
(ACFE, 2020).
1
The p esence o an IAF can educe median losses om
aud by 33% (ACFE, 2022). The IAF se es as a cen al con ol mech-
anism o achie e compliance and p e en aud (F iedbe g, 1998;
Ma’ayan & Ca meli, 2016).
Mos esea ch on he an eceden s and de e minan s o co po a e
aud ocuses on o ganiza ional-le el ac o s (Mu schmann
e al., 2021). Pas s udies ha e assessed se e al ac o s c i ical o he
ele ance o in e nal audi o s in aud p e en ion o de ec ion
(Kabuye e al., 2017; Khelil e al., 2016; No man e al., 2010). The p o-
ession o in e nal audi ing has emphasized he ole o in e nal audi -
ing h ough guidance aimed a imp o ing i s e ec i eness (The
IIA, 2019). Howe e , exis ing esea ch on he ole o in e nal audi ing
in aud isk managemen is limi ed o se e al easons. Few s udies
p esen empi ical e idence on ac o s associa ed wi h he ole o
in e nal audi ing in managing aud isk. Mos s udies use expe imen-
al me hods (Asa e e al., 2008; No man e al., 2010) o ha e limi ed
sample sui abili y (D ogalas e al., 2017; Kabuye e al., 2017; Khelil
e al., 2016). P io s udies o en o e look ecen de elopmen s, such
as he g owing impo ance o inno a i e IT ools o new whis leblow-
ing legisla ion. Mos esea ch ocuses on speci ic indus ies o coun-
ies wi h unique cha ac e is ics, such as high co up ion le els.
Consequen ly, p e ious esea ch does no o e gene alizable esul s,
and he e is no consensus on he concep o he ole o in e nal audi -
ing in managing aud isk and i s de e mining ac o s. This lack o
consensus is su p ising, gi en ha pa s o he Ins i u e o In e nal
Audi o s' (IIA) global In e na ional P o essional P ac ice F amewo k
and anecdo al e idence di ec ly link in e nal audi ing o aud p e en-
ion and de ec ion.
In esponse o Mu schmann e al.’s(
2021) call o u he
esea ch, we aim o add ess his esea ch gap by conduc ing a b oade
explo a ion o he po en ial d i ing ac o s ha may in luence he p o-
pensi y o In e nal Audi Func ions (IAFs) o manage aud isk. Wi h
he inc easing impo ance o aud isk managemen , he pu pose o
he s udy is wo old. Fi s ly, we examine he ci cums ances and egu-
la ions ha shape he ole o he IAF in managing such une hical p ac-
ices. Secondly, we aim o deepen he unde s anding o he main
d i e s ha shape he IAF's ole in his con ex .
We analyse po en ial d i e s using o de ed logis ic eg ession
models on a di e se su ey da a se , comp ising esponses om
281 chie audi execu i es ac oss h ee Eu opean coun ies. Ou ind-
ings sugges a s ong go e nance en i onmen and echnology-based
audi ing echniques posi i ely co ela e wi h he IAF's ole in aud
isk managemen . In e es ingly, addi ional mee ings wi h managemen
s eng hen he IAF's ole in managing aud isk, while mo e mee ings
wi h he audi commi ee show a nega i e associa ion. Iden i ying
hese d i e s can help o ganiza ions bols e aud p o ec ion and high-
ligh he impo ance o in e nal audi ing.
The pape is s uc u ed as ollows: sec ion 2 e iews ele an li -
e a u e and de elops hypo heses. Sec ion 3desc ibes he esea ch
me hod and sec ion 4p esen s he esul s. The inal sec ion discusses
he esul s, connec s hem o exis ing esea ch and heo y and o e s
concluding ema ks including implica ions o u u e esea ch and
po en ial limi a ions o he s udy.
2|LITERATURE REVIEW AND
HYPOTHESES DEVELOPMENT
2.1 |The cu en landscape o aud isk
managemen
As a esul o ongoing co po a e aud scandals, he need o good
co po a e go e nance in e ms o e ec i e aud isk managemen
has become inc easingly impo an . P io scandals e ealed unseen
issues wi hin businesses and he accoun ing p o ession, leading o sig-
ni ican damage o he epu a ion o he en i e p o ession
(F ee, 2015). The e ec s we e de as a ing as he public's con idence
in he inancial ma ke s was des oyed. The consequence was he
implemen a ion o he Sa banes-Oxley Ac in 2002, which had
he main objec i e o egain public con idence by c ea ing a quasi-
public ins i u ion o o e sigh , egula ing audi ing and in ol ing
audi o s mo e in en o cing exis ing laws agains he and aud by
co po a e o ice s (Coa es & S ini asan, 2014; G een, 2004;
Ma’ayan & Ca meli, 2016). A he same ime, penal ies o audulen
inancial epo ing ha e isen signi ican ly o mee socie y's pe cep ion
o audulen beha iou (Co am e al., 2008). The ongoing exis ence
and eoccu ence o aud cases, despi e changes and adjus men s in
egula ion, emphasize he impo ance o companies o s i e o
e ec i e handling o aud.
The IIA (2019) de ines aud
2
as “any illegal ac cha ac e ized by
decei , concealmen , o iola ion o us ”(p.1). F aud is no unique o
speci ic ypes o o ganiza ions meaning ha e e y o ganiza ion can
po en ially become a ic im o aud. The Associa ion o Cha e ed
Ce i ied Accoun an s (2021) highligh s ha aud can po en ially
impac no only a i m's epu a ion bu also i s bo om line. Recen
epo s and publica ions emphasize he inc easing p e alence and
impo ance o aud, which unde sco es he necessi y o es ablish
p oac i e esponsibili ies in ela ion o aud (Holm e al., 2012). The
ole o in e nal audi ing is gene ally desc ibed as a line o de ence ha
has a pi o al esponsibili y in moni o ing isks as well as p e en ing
and de ec ing aud.
3
S ill, whene e i comes o aud cases, he ocus
shi s o a company's o e all co po a e go e nance. Gi en ha aud
is one o he op isks o ganiza ions ace, in e nal audi o s, as a d i e
o e ec i e isk managemen , a e equen ly expec ed o ake espon-
sibili y o p e en ing,
4
de e ing and de ec ing aud.
In e nal audi ing's ole in aud p e en ion and de ec ion becomes
clea e when conside ing he co e p inciples as de ined by he IIA.
Acco ding o he IIA (2021), in e nal audi ing is an independen unc-
ion ha p o ides objec i e assu ance and consul a ion o imp o e an
o ganiza ion's ope a ions. I applies a sys ema ic, disciplined app oach
o e alua e and enhance he e ec i eness o isk managemen , con-
ol and go e nance p ocesses. This ole posi ions in e nal audi ing as
a key playe in adding alue o an o ganiza ion, pa icula ly h ough i s
e o s in aud p e en ion and de ec ion. As such, in e nal audi ing
616 BONRATH and EULERICH
can signi ican ly con ibu e o ope a ional pe o mance by inc easing
he e ec i eness o aud p e en ion and de ec ion measu es (Asa e
e al., 2008; No man e al., 2010). Besides, in e nal audi ing can indi-
ec ly c ea e alue by os e ing an e hical cul u e he eby p e en ing
aud (Ma’ayan & Ca meli, 2016).
5
The e a e se e al S anda ds pub-
lished by he IIA add essing he ole o in e nal audi o s in moni o ing,
p e en ing and de ec ing aud isks and di ec ing hose isks in audi s
and in es iga ions which a e po ayed in Appendix A. These encom-
pass, o example, he equi ed knowledge o e alua ing aud isk,
epo ing abou aud and he conside a ion o aud when de eloping
engagemen objec i es.
We e e o he amewo k by Mu phy and Dacin (2011), which
la gely builds upon he aud iangle, a model ha p edic s he likeli-
hood o aud wi hin an o ganiza ion by conside ing h ee ac o s:
oppo uni y, a ionaliza ion and p essu e. This amewo k se es as a
heo e ical ounda ion o illus a ing he ele ance o in e nal audi -
ing ac i i ies. The p e en i e and de ec i e wo k o in e nal audi o s
p ima ily add esses he oppo uni y componen wi hin his ame-
wo k, as in e nal audi o s a e expec ed o educe u u e oppo uni ies
o aud by iden i ying ine ec i e con ols. While mos exis ing
esea ch has ocused on o ganiza ional-le el cha ac e is ics a ec ing
he pe cei ed oppo uni y o commi aud, ecen s udies ha e
s a ed o explo e he o he wo componen s o he aud iangle,
which a e mos ly ela ed o indi idual cha ac e is ics (Mu schmann
e al., 2021). The ollowing s eps wi hin he espec i e pa hways o
he amewo k a e ela ed o awa eness, and in ui ion coupled wi h
a ionaliza ion and easoning. In e nal audi o s a e expec ed o p o-
mo e an e hical cul u e, which may lead o inc eased awa eness o
wha cons i u es aud and i s ela ed se e i y. In he long un, his is
expec ed o cla i y ha aud is undesi able wi hin o ganiza ions so
ha employees a e mind ul ha aud is unaccep able and ha i s
cos s exceed i s bene i s. Gi en an indi idual's awa eness o audu-
len beha iou , bo h in ui ion and easoning may be al e ed h ough
u he an i- aud means such as an an i- aud guideline, speci ic ain-
ing o e ec i e whis leblowing channels. O e all, hese pa hways
o e a demons a ion o in e nal audi o s' e o s owa d p e en ing
and de ec ing aud (see S e ens e al., 2005 o insigh s in o how
e hics impac s decision-making unde p essu e). In e nal audi ing
mainly add esses he h ee main decision poin s issues and he eby
igh ing aud (Figu e 1).
While ex e nal audi o s a e o en held esponsible o managing
aud, hei e ec i eness is po en ially hampe ed by hei de achmen
om he i ms hey audi . Thei main esponsibili y lies in de ec ing
ma e ial miss a emen s in inancial epo s caused by audulen ac i -
i ies. Howe e , his ocus es ic s hei scope, po en ially limi ing hei
o e all e ec i eness in aud managemen .
6
DeZoo and Ha ison
(2018) con i m he men ioned sepa a ion o du ies by concluding ha
ex e nal audi o s pe cei e hei esponsibili y as p edominan ly linked
o aud in inancial s a emen s. Con e sely, in e nal audi o s belie e
hey bea equal esponsibili y ac oss all ypes o aud. This gap
be ween p esc ibed and pe cei ed esponsibili ies unde sco es he
complexi y o delinea ing aud de ec ion and managemen oles. Con-
side ing hese cons ain s, and he di ision o du ies wi hin an
o ganiza ion, a la ge pa o aud isk managemen alls unde he pu -
iew o he IAF.
7
Ye , as G ossi e al. (2007) e ealed, a ying o gani-
za ional s uc u es can lead o di e en esponsibili ies.
Al hough he expec a ion ega ding he ole o in e nal audi ing in
managing aud appea s o be clea -cu , he equency o aud occu -
ences and he a ying ele ance o aud o he IAF sugges ha
he e a e speci ic condi ions needed o he IAF o ul il i s ole e ec-
i ely in aud isk managemen . As a esul , he esea ch ques ion o
ou s udy is:
RQ: Wha a e he ac o s ha in luence he ocus o in e nal audi o s
on aud p e en ion and de ec ion?
2.2 |Resea ch hypo heses
2.2.1 | Go e nance en i onmen
Recen aud scandals e ealed p o ound weaknesses in co po a e
go e nance s uc u es (Nasi e al., 2019). As he quali y o
co po a e go e nance appea s o be o c ucial ele ance when i
comes o aud, egula o s ha e enac ed ules in ended o s eng hen
he quali y o co po a e go e nance (Bhaga & Bol on, 2019). Agency
heo y sugges s ha he likelihood o aud depends on speci ic in e -
nal go e nance s uc u es o o ganiza ions (Dal on e al., 2007).
Acco dingly, manage ial misbeha iou s a e ound o be p e en ed
h ough e ec i e co po a e go e nance sys ems (Liu, 2016). One way
ha companies a e esponding o hese new ules is by implemen ing
go e nance amewo ks such as heTLM.
8
The TLM aids in s uc u ing
he esponsibili ies o key playe s and p o iding o ganiza ions wi h
e ec i e s uc u es as well as p ocesses o achie ing hei objec i es
and suppo ing s ong go e nance and isk managemen (The
IIA, 2020). The model ensu es alignmen o all o ganiza ional ac i i ies
and goals wi h he in e es s o a ious in e nal and ex e nal s ake-
holde g oups. I also unde sco es he posi ioning o in e nal audi ing
and he inc easing complexi y o oday's business wo ld. I unde -
sco es he impo ance o egula communica ion and in e ac ion
among hese en i ies o ensu e he in e nal audi 's wo k aligns wi h
he o ganiza ion's s a egic and ope a ional needs. P io esea ch inds
ha an inadequa e posi ioning o he IAF can signi ican ly change o
e en limi in e nal audi ing's alue-adding wo k (Caplan &
Ki schenhei ne , 2000). Howe e , ecen li e a u e challenges he ole
o in e nal audi as a h i ing go e nance ool, emphasizing he isk o
o e eliance and he complexi y o e hical issues (Roussy &
Rod igue, 2018).
While he TLM is a ge ed a o e a ching o ganiza ional s uc-
u es, whis leblowing is a key go e nance mechanism a he mic o
le el ha is cu en ly expe iencing a majo upswing, mainly d i en
by he change in he egula o y en i onmen wi hin he Eu opean
Union (EU) and he Uni ed S a es (see Vandeke ckho e (2021) o
a discussion on he o me ). Whis leblowing channels in o ganiza-
ions ha e a dual impac . Fi s ly, hey unc ion as a c i ical ool o
aud de ec ion, p o iding indi iduals wi h a means o epo
BONRATH and EULERICH 617
audulen ac i i ies (Dyck e al., 2010). Essen ially, hey o e a
condui o indi iduals o sound he ala m when hey suspec o
obse e aud. Secondly, hese channels can also play a signi ican
ole in aud p e en ion (Johansson & Ca ey, 2016). The p esence
o e ec i e whis leblowing sys ems can signal he o ganiza ion's
s ance agains aud, emphasizing he isks and consequences o
po en ial auds e s. I c ea es a pe cep ion o inc eased su eil-
lance and heigh ened isk o exposu e, he eby po en ially de e ing
audulen beha iou . Mo eo e , he es ablishmen o whis leblow-
ing channels can enhance he o ganiza ion's o e all e hical clima e.
I encou ages no only employees bu also indi iduals ex e nal o
he o ganiza ion o epo suspec ed aud (Johansson &
Ca ey, 2016; Keenan, 2000). The e o e, he inclusion o hese
channels can lead o a mo e anspa en , igilan and e hically
inclined en i onmen .
Conside ing he escala ed complexi y o aud cases and he
necessi y o de ined s uc u es and au ho i y wi hin o ganiza ions,
we de ine a s ong go e nance en i onmen as one inco po a ing go -
e nance models like he TLM and obus whis leblowing mechanisms.
Such an en i onmen , besides assis ing in aud de ec ion, signi ican ly
shapes he o ganiza ion's o e all e hical clima e. This speci ic unde -
s anding guides us o he ollowing hypo hesis:
FIGURE 1 The amewo k: psychological pa hways o aud (Mu phy & Dacin, 2011).
618 BONRATH and EULERICH
H1. A s ong go e nance en i onmen is associa ed
wi h in e nal audi ing aking a mo e dis inc ole in aud
p e en ion and de ec ion.
This expec a ion, howe e , is no wi hou ension. A s ong
go e nance en i onmen , cha ac e ized by s uc u ed go e nance
models like TLM and obus whis leblowing mechanisms, guides
in e nal audi ing o ake a mo e s eamlined ole in aud p e en ion
and de ec ion. Con e sely, in a weak go e nance en i onmen ,
whe e hese mechanisms a e de icien o absen , in e nal
audi ing may be compelled o adop a mo e p oac i e and dis inc ole
in aud p e en ion and de ec ion due o po en ially highe ins ances
o aud.
2.2.2 | Independence and objec i i y
The concep o objec i i y is undamen al o e ec i e in e nal audi
se ices, whe e an unbiased men al a i ude is c ucial (Reding
e al., 2013). This objec i i y assumes heigh ened impo ance when
he IAF se es as a go e nance mechanism, ensu ing e ec i eness
and c edibili y (Messie e al., 2011).
E en hough objec i i y is ancho ed in he de ini ion o in e nal
audi ing, ce ain ac o s could po en ially comp omise he objec i i y
o IAFs. Among he mos signi ican is he ela ionship IAF sha es wi h
di e en s akeholde s wi hin an o ganiza ion. P io esea ch e eals
ha he ela ionship wi h di e en s akeholde s is an impo an p e-
dic o o he ou pu gene a ed by he wo k o in e nal audi o s
(Eule ich e al., 2017). This ou pu is also in luenced by in e nal
dynamics such as epo ing lines (Rose e al., 2013), he u iliza ion o
he IAF as a managemen aining g ound (Hoos e al., 2018) and
sou cing decisions (Ahlawa & Lowe, 2004).
C i ically, he objec i i y o he IAF is ques ioned when senio
managemen wields excessi e in luence o e hem (Messie
e al., 2011; Rose e al., 2013). Fo ins ance, senio managemen 's
expec a ions can signi ican ly in luence in e nal audi ing, po en ially
shi ing he ocus away om in e nal-con ol-based ac i i ies o mo e
ope a ionally ocused audi s and consul ing- ela ed se ices (Abbo
e al., 2010; Sa ens & De Beelde, 2006). This c ea es a con lic o
in e es and compe ing demands ega ding he alloca ion o
esou ces and he scope o IAF ac i i ies (He manson &
Ri enbe g, 2003).
This ension is illus a ed in No man e al.'s (2010) inding ha
in e nal audi o s eel mo e h ea ened by managemen when hey
epo di ec ly o he audi commi ee, subsequen ly dec easing he
assessmen o he isk o aud. This hin s a a po en ial e hical con lic
inhe en o he IAF (Khelil e al., 2016). Despi e his challenge, he
impo ance o he audi commi ee in p oac i ely p omo ing IAF inde-
pendence is emphasized (Jaggi, 2022). Objec i i y is essen ial o an
in e nal audi o 's unbiased assessmen s, judgmen s and decisions,
hough (Hazami-Amma , 2019).
Taken oge he , hese conside a ions e eal a nuanced ela ion-
ship be ween he IAF's objec i i y and independence and i s abili y o
manage aud e ec i ely. The ollowing hypo hesis is no wi hou en-
sion. While one would na u ally an icipa e ha when he IAF is pe -
mi ed o main ain i s independence and objec i i y, i will ake on a
mo e de ined ole in aud p e en ion and de ec ion, p e ious indings
(e.g., No man e al., 2010) o e a di e en pe spec i e. They highligh
ha he IAF migh eel h ea ened by managemen , he eby dec eas-
ing he assessmen o he isk o aud.
Taking in o accoun hese con lic ing iewpoin s, we pu o wa d
ou hypo hesis:
H2. Mo e objec i e and independen IAFs a e posi-
i ely associa ed wi h in e nal audi ing aking a mo e
dis inc ole in aud p e en ion and de ec ion.
2.2.3 | Technology
Technological inno a ions no only enhance he e iciency o in e nal
audi ing (Bie s ake e al., 2014; Rakipi e al., 2021) bu also ampli y
he e ec i eness, especially in he con ex o aud de ec ion (Islam &
S a o d, 2021; Li e al., 2018). Audi analy ics and da a mining
app oaches a e essen ial ools o alloca ing esou ces e ec i ely and
educing he isk o in e nal aud in a company.
The u ili y o echnology is ex ensi ely explo ed in bo h academic
li e a u e and p ac i ione epo s, highligh ing he use o echnologi-
cal ools o unco e insigh s, inc ease aud de ec ion and op imize
he use o physical esou ces (e.g., CaseWa e, 2022; Chand akala
e al., 2020; G een & Choi, 1997; Sa no e al., 2015; The IIA, 2022).
The use o da a analysis echniques has been linked o inc eased e i-
ciency, expanded audi co e age ( an de Nes e al., 2018) and
enhanced audi quali y (Mo i e al., 2018).
The alue o echnology o IAFs is wo old. Fi s ly, echnology
enables a isk-based app oach, enhancing he de ec ion o anomalies
and ed lags. The ad ancemen o echnology has gi en ise o me h-
odologies like con inuous audi ing, which can signi ican ly imp o e
he e ec i eness o isk-based audi planning - a undamen al
app oach in mode n in e nal audi ing (Eule ich e al., 2020). A isk-
based app oach implies a ocus on a eas wi h highe isks o anomalies
ha ha e been iden i ied h ough da a analysis, which is only easible
wi h ad anced echnology. This app oach allows audi o s o sys ema -
ically iden i y, assess and add ess isks, which may be pa icula ly ben-
e icial o aud p e en ion and de ec ion. Secondly, imp o ed
esou ce alloca ion acili a ed by echnology allows a wide ange o
in e nal audi asks. The e iciency gains om using echnology ee
up esou ces, which can hen be alloca ed o mo e complex asks o
ho ough in es iga ions o anomalies, ul ima ely leading o highe
audi quali y.
In ligh o hese conside a ions, we p opose ou hi d hypo hesis
ega ding he impo ance o echnological ad ancemen s in IAFs:
H3. A high le el o echnological de elopmen in IAFs
is posi i ely associa ed wi h in e nal audi ing aking a
mo e dis inc ole in aud p e en ion and de ec ion.
9
BONRATH and EULERICH 619
Wi h he ad ancemen o echnology, he na u e o aud i sel is
also changing, becoming mo e sophis ica ed and complex. This means
ha e en as echnology enhances he IAF's aud de ec ion capabili-
ies, new challenges con inue o eme ge. Thus, he in e play be ween
echnological de elopmen , human judgmen and e ol ing aud
schemes c ea es a dynamic and ense landscape in which IAFs ope -
a e. This hypo hesis is, he e o e, no wi hou ension and e lec s a
nuanced unde s anding o he complexi ies inhe en in mode n in e -
nal audi ing.
Ou concep ual amewo k ha illus a es he po en ial d i e s o
in e nal audi unc ions' ocus on aud is p esen ed in Figu e 2.
3|METHODOLOGY
3.1 |Pa icipan s and p ocedu e
Ou s udy is based on da a om a comp ehensi e su ey o chie
audi execu i es ac oss Ge many, Aus ia and Swi ze land. I was
join ly conduc ed by he espec i e chap e o he IIA.
10
The su ey
da a was collec ed in ea ly 2020. In o al, 4,009 chie audi execu-
i es we e in i ed o pa icipa e, ega dless o hei IIA membe ship
s a us.
The ques ionnai e comp ises o e a hund ed ques ions, co e ing
a ious a eas o in e nal audi ing. These a eas include he a angemen
o in e nal audi ing, s a ing, co po a e go e nance and aud, compen-
sa ion and success ac o s o he IAF.
11
We ecei ed 505 esponses,
esul ing in a esponse a e o 12.6%. This a e aligns wi h o he s udies
in he ield o in e nal audi ing (e.g., Abbo e al., 2016; Ca cello
e al., 2005).
We checked he da ase o ou lie s and emo ed any iden i ied
ou lie s wi hin he selec ed a iables o he empi ical models. Fo ou
empi ical app oach, we only included obse a ions ha p o ided com-
ple e answe s o all ele an a iables. The size o he da ase is a ou -
able o s a is ical powe , gi en he la ge numbe o obse a ions om
a wide a ie y o companies in e ms o size, complexi y and indus ies.
3.2 |Model
To assess he e ec s o po en ial d i e s on aud isk managemen ,
we applied an o de ed logis ic eg ession model. The eg ession equa-
ion is as ollows:
aud_scope ¼β1co po a e_go e nanceþβ2ACþβ3managemen
þβ4 echnologyþCONTROLSþε
The dependen a iable, e e ed o as aud_scope, ep esen s
he ex en o which he IAF cu en ly ocuses on p e en ing and
de ec ing aud, measu ed on a scale om one o i e, wi h i e indi-
ca ing a highe ocus. The model includes ou independen a iables
and a ec o o con ol a iables o analyse possible d i e s and es
he hypo heses. To cap u e he cha ac e is ics o he unde lying co -
po a e go e nance s uc u es (H1), we cons uc ed a composi e mea-
su e using P incipal Componen Analysis (PCA). This app oach aligns
wi h he me hodology a icula ed by Allee e al. (2022) and esona es
wi h he applica ion o PCA wi hin he ealm o in e nal audi
esea ch, as demons a ed by D'Onza e al. (2020). The Kaise -
Meye -Olkin s a is ic o 53.27% aligns wi h p e ious esea ch
app oaches (e.g., Ca e e al., 2019; Mahama & Cheng, 2013). The
analysis e ealed ha only he i s componen wi h an eigen alue
la ge han one (eigen alue o 1.31) could be ex ac ed. This compo-
nen , comp ised o ou co po a e go e nance- ela ed a iables,
explains 32.85% o he o al a iance. The ac o loadings o his
componen ange om 0.089 o 0.658, unde sco ing he di e se ye
subs an ial con ibu ions o each a iable o he ex ac ed
componen .
To es he second hypo hesis, we include wo a iables ela ed o
independence and objec i i y ep esen ed by bo h key s akeholde
g oups, managemen and audi commi ee. We an icipa e di e ging
in e es s, po en ially placing in e nal audi o s in a posi ion whe e hey
ace he se ing- wo-mas e s issue. Acco dingly, we c ea ed wo
dummy a iables, AC and managemen , deno ing whe he he IAF has
addi ional pe sonal mee ings wi h he audi commi ee and manage-
men , espec i ely.
12
We expec he signs o he wo a iables o be
opposi e wi h a nega i e sign o AC. Howe e , since he in luence o
managemen and AC is s ongly con ex -speci ic (Jaggi, 2022), a p edic-
ion o he di ec ion o he coe icien is no easible. As pe p io li e -
a u e, we expec a posi i e sign o managemen as his may educe he
dis ess in e nal audi o s eel when epo ing aud. Wi h espec o he
p incipal-agen heo y, he occu ence o aud can be unde s ood as a
ailu e o he agen (see Za dkoohi e al. (2017) o insigh s on oppo u-
nis ic beha iou in p incipal-agen ela ionships). The e o e, i seems
easonable o assume ha managemen , as an agen , a ibu es high p i-
o i y o he p e en ion and de ec ion o aud.
To in es iga e he ela ionship be ween echnological ad ance-
men and aud managemen , ou model includes a iable echnology.
FIGURE 2 Concep ual amewo k
illus a ing po en ial d i e s.
620 BONRATH and EULERICH
This a iable assesses he ex en o which a echnology-based audi -
ing app oach aids in iden i ying new isks, a ed on a scale om one
o i e. We posi ha he iden i ica ion o new isks h ough echnol-
ogy signi ies an inno a i e app oach o enhancing e iciency and
e ec i eness. Consequen ly, we an icipa e a posi i e coe icien o
he echnology a iable.
The model also inco po a es con ol a iables o es and, ideally,
s a is ically nulli y hei impac on he dependen a iable. P io
esea ch consis en ly demons a es a signi ican associa ion be ween
a company's lis ing s a us and disclosu e le els (e.g., Fi h, 1979).
The e o e, we include lis ing as a dummy a iable in ou empi ical
model o accoun o sys ema ic di e ences be ween lis ed and non-
lis ed o ganiza ions. Simila ly, we include he size o he IAF as a con-
ol a iable, gi en i s po en ial o undamen ally al e he na u e o
he IAF. P io s udies indica e an associa ion be ween he size o he
IAF, audi ac i i ies and o he i m cha ac e is ics, such as a ilia ion
wi h he inancial sec o (Alhaj i, 2017). This is also ela ed o he
app oach o Sa ens and Abdolmohammadi (2011) who s a e ha
la ge IAFs imply mo e s a in he company whose p ima y esponsi-
bili y is o ac i ely moni o he company. Acco dingly, he con ol a i-
able ia _size is included in he model o con ol o o ganiza ional
cha ac e is ics ela ed o he IAF's size in e ms o he numbe o
employees wi hin he IAF. Inco po a ing he o ganiza ional size, o g_-
size, depic ed by he numbe o employees, aligns wi h p io s udies
such as Ca cello e al. (2005), who ound a posi i e associa ion
be ween i m size and he IAF budge , and D'Onza e al. (2020). The
a iable inance is included as a dummy a iable e e ing o he com-
pany's indus y. P io li e a u e sugges s ha he na u e o he indus-
y leads o di e en a angemen s o IAFs (Ca cello e al., 2005;
Sa ens & Abdolmohammadi, 2011) as well as a mo e p onounced isk
o aud (Baucus & Nea , 1991). The inancial indus y, in pa icula , is
known o i s unique cha ac e is ics and high egula ion, o en leading
o la ge IAF budge s. Geog aphical di e ences in aud and a i udes
owa ds i s p e en ion and de ec ion necessi a e he inclusion o
coun y- ela ed con ol a iables. Gene ally, he exposu e o aud
isk canno be abs ac ed om he cul u al con ex o aud. Mih e
(2014) poin s ou ha na ional cul u e can p o ide a use ul analy i-
cal lens o analyse aud isk agains he cul u al con ex , which is
why we include bo h Ge many and Aus ia as con ol a iables. In
addi ion, we ha e included di e si y, measu ed by he p esence o
o eign na ionali ies in he IAF, as a con ol a iable. P io esea ch
in in e nal audi ing con ols o he IAF's age, as di e en le els o
IAF ma u i y a e linked o a ying asks. This inclusion allows us o
accoun o hese cha ac e is ics in ou model.
13
4|RESULTS
4.1 |Desc ip i e s a is ics
Desc ip i e s a is ics on he model a iables a e p esen ed in Table 1.
I gi es ini ial insigh s ega ding he da a cha ac e is ics o he
esponden s and he eby helps o iden i y impo an cha ac e is ics o
he esponden s' in e nal audi depa men s as a ounda ion o he
empi ical model.
The dependen a iable, aud_scope, has a mean alue o 3.89
and a s anda d de ia ion o 0.95. Rega ding he ela ionship wi h he
audi commi ee, 40% o esponden s epo ed addi ional mee ings.
Meanwhile, a signi ican 89% indica ed inc eased in e ac ions wi h
managemen , sugges ing a highe equency o supplemen al mee ings
wi h managemen han wi h he audi commi ee. The esponden s
appea mode a e in e ms o hei echnology usage o isk iden i ica-
ion gi en a mean o 3.09 o he a iable echnology wi h a s anda d
de ia ion o 1.02.
The a e age alue o he a iable lis ed is 0.41, which ansla es
o 41% o he esponden s' o ganiza ions being lis ed. The numbe o
ull- ime equi alen s wi hin he in e nal audi depa men as a con ol
a iable, a e log ans o ma ion, anges om 0.00 o 5.99 and has a
mean o 1.68. The size o he en i e o ganiza ion, log- ans o med,
a e ages a 7.65. Mo eo e , wi hin he in e nal audi depa men s,
ou da a e eals ha a ound 32% o he eams include membe s o
o eign na ionali ies, as indica ed by a mean o 0.31. The o ganiza ions
o 36% o esponden s ope a e in he inancial indus y. Meanwhile,
ou sample includes 65% o esponden s om Ge many and 19% om
Aus ia. The mean age in he sample is 25.8.
Table A3 shows he co ela ion ma ix o he p esen ed empi ical
analysis. The Pea son co ela ion ma ix shows no high le els o co e-
la ion be ween any o he independen a iables o he model. This is
suppo ed by ole ance and a iance in la ion ac o s alues which a e
illus a ed in Table A4. The esul s show ha he VIF alues co e-
sponding o he explana o y a iables ha e a mean o 1.66. Simila ly,
he ole ances a e low, wi h a mean o 0.60. This signi ies minimal
mul icollinea i y, a i ming he alidi y o he p oposed model.
4.2 |Reg ession esul s
Table 2p esen s he esul s o he o de ed logis ic eg ession model
used o es ou hypo heses. The o e all model is s a is ically signi i-
can (p < 0.001).
Ou analysis e eals ha a obus co po a e go e nance en i on-
men is signi ican ly posi i ely associa ed wi h he dependen a iable
(p- alue < 0.01), con i ming ou i s hypo hesis. The esul s o he
a iables ep esen ing pe sonal mee ings wi h he audi commi ee
and managemen align wi h ou expec a ions and suppo ou second
hypo hesis. Speci ically, addi ional p i a e mee ings wi h he audi
commi ee a e nega i ely associa ed wi h he dependen a iable (p-
alue < 0.01), while addi ional p i a e mee ings wi h managemen a e
posi i ely associa ed (p- alue < 0.05). These indings echo hose o
No man e al. (2010) and highligh he po en ial con lic s o in e es
a ising om he dual- epo ing s uc u e o in e nal audi unc ions
(Abbo e al., 2010). As hypo hesized, he use o echnology o isk
iden i ica ion is ano he signi ican d i e o he dependen a iable
(p- alue < 0.01), suppo ing ou hi d hypo hesis.
Among he con ol a iables, ia _size is s a is ically signi ican
(p- alue < 0.10) wi h a nega i e coe icien , while Aus ia,age and
BONRATH and EULERICH 621
o g_size a e s a is ically signi ican (p- alue < 0.05, p- alue < 0.10,
p- alue < 0.05, espec i ely) wi h posi i e coe icien s.
4.3 |Sensi i i y analysis
We conduc addi ional analyses o alida e ou co e eg ession coe i-
cien es ima es. When eplacing he co po a e go e nance measu e
wi h each o he ou unde lying a iables (co po a e go e nance
guideline, whis leblowing ips, e hics guideline, esou ces), we ind
posi i e and signi ican esul s, suppo ing he alidi y o ou main
in e ences (co po a e go e nance =0.514**, whis leblowing =
0.524***, e hics =0.851***, esou ces =0.494***). Gi en ha aud
isk managemen migh depend on he indus y, we add indus y- ixed
e ec s o he ini ial model. We con ol o hose indus ies ha a e
su icien ly ep esen ed in he sample, namely public, manu ac u ing
and se ice. The esul s (un abula ed) emain simila o his a ia ion,
o e ing u he suppo o ou main in e ences.
We also un eg ession models using he same independen a i-
ables bu a ying he dependen a iables, as shown in Table A5. One
model uses a dependen a iable ha e e s o he use o in e nal
audi esul s o aud p e en ion. This choice s ems om he idea
ha a g ea e use o in e nal audi esul s o aud p e en ion indi-
ca es an inc eased ocus o ele ance o aud wi hin he scope o
in e nal audi ing ac i i ies. The ques ion uses he same i e-poin
Like scale as he eplaced one.
In ano he model, we use a dependen a iable ha e e s o
whe he he de ec ion and in es iga ion o aud a e conside ed a
success ac o o he IAF. This a iable mainly ela es o he a i-
ude o hose who use he audi esul s, hus b oadening he
scope o he ini ial model. This a iable also uses a i e-poin
Like scale.
TABLE 1 Desc ip i e s a is ics.
Va iable Mean S d. de . Min p25 Median p75 Max
Dependen a iable
aud_scope 3.89 0.95 1.00 3.00 4.00 5.00 5.00
Independen a iables
co po a e_go e nance 0.08 1.10 2.79 0.68 0.01 1.07 1.81
AC 0.40 0.49 0.00 0.00 0.00 1.00 1.00
Managemen 0.90 0.31 0.00 1.00 1.00 1.00 1.00
Technology 3.10 1.02 1.00 3.00 3.00 4.00 5.00
Con ol a iables
Lis ed 0.41 0.49 0.00 0.00 0.00 1.00 1.00
ia _size 1.68 1.13 0.00 0.69 1.61 2.48 5.99
Finance 0.36 0.48 0.00 0.00 0.00 1.00 1.00
Ge many 0.66 0.48 0.00 0.00 1.00 1.00 1.00
Aus ia 0.19 0.40 0.00 0.00 0.00 0.00 1.00
Age 25.62 20.58 0.50 11.00 20.00 30.00 100.00
Di e si y 0.32 0.47 0 0 0 1 1
o g_size 7.66 1.91 0.40 6.33 7.65 8.85 11.96
TABLE 2 Es ima ed esul s o he eg ession model.
Va iable Coe icien
co po a e_go e nance 0.608***
(0.127)
AC 0.800***
(0.286)
Managemen 0.932**
(0.405)
Technology 0.321***
(0.108)
Lis ed 0.142
(0.291)
IAF_size 0.260*
(0.147)
Finance 0.487
(0.338)
Ge many 0.536
(0.348)
Aus ia 0.977**
(0.402)
Age 0.011*
(0.006)
Di e si y 0.099
(0.296)
o g_size 0.213**
(0.088)
Nagelke ke R2 0.246
Numbe o obse a ions 275
No e: *, **, *** indica e s a is ical signi icance a he p ≤0.10, 0.05 and
0.01 le els, espec i ely. S anda d e o s a e in pa en heses.
622 BONRATH and EULERICH
TABLE A3 Co ela ion ma ix.
No Va iable 1 2 3 4 5 6 7 8 9 10 11 12 13
1 aud_scope 1.000
2co po a e_go e nance 0.255*** 1.000
3AC 0.065 0.281*** 1.000
4Managemen 0.177*** 0.165* 0.098* 1.000
5Technology 0.174** 0.132** 0.080 0.071 1.000
6Lis ed 0.044 0.266*** 0.364*** 0.152** 0.037 1.000
7ia _size 0.006 0.229*** 0.295*** 0.036 0.011 0.290*** 1.000
8Finance 0.071 0.218*** 0.210*** 0.101** 0.133** 0.214*** 0.214*** 1.000
9Ge many 0.001 0.226*** 0.262*** 0.037*** 0.005 0.130** 0.063 0.120** 1.000
10 Aus ia 0.099* 0.094* 0.025 0.135*** 0.005 0.108** 0.100* 0.028 0.691*** 1.000
11 Age 0.075 0.097* 0.172*** 0.087* 0.035 0.161*** 0.437*** 0.313*** 0.082 0.053 1.000
12 Di e si y 0.091* 0.157*** 0.157 0.067 0.050 0.229*** 0.470*** 0.065 0.080 0.035 0.033 1.000
13 o g_size 0.205*** 0.167*** 0.136*** 0.156*** 0.011 0.213*** 0.458*** 0.316*** 0.004 0.114** 0.153*** 0.252*** 1.000
BONRATH and EULERICH 629
TABLE A4 Collinea i y s a is ics.
Tole ance VIF
co po a e_go e nance 0.77 1.30
AC 0.68 1.46
Managemen 0.91 1.10
Technology 0.94 1.06
Lis ed 0.74 1.35
ia _size 0.45 2.23
Finance 0.53 1.22
Ge many 0.43 2.31
Aus ia 0.46 2.18
Age 0.73 1.37
Di e si y 0.64 1.56
o g_size 0.47 2.11
Mean 0.60 1.66
TABLE A5 Addi ional aud- ela ed
models.
Va iable F aud p e en ion Success ac o F aud isk
co po a e_go e nance 0.393*** 0.403*** 0.567***
(0.125) (0.119) (0.111)
AC 0.257 0.417 0.017
(0.277) (0.262) (0.267)
Managemen 0.141 0.484 0.130
(0.397) (0.397) (0.362)
Technology 0.218* 0.310** 0.277**
(0.115) (0.123) (0.129)
Lis ed 0.020 0.049 0.257
(0.275) (0.253) (0.263)
IAF_size 0.096 0.122 0.209
(0.148) (0.159) (0.137)
Finance 0.916*** 0.946*** 0.329
(0.326) (0.356) (0.307)
Ge many 0.862** 0.033 0.512
(0.337) (0.357) (0.373)
Aus ia 0.488 0.538 0.702*
(0.399) (0.438) (0.420)
Age 0.013** 0.007 0.011*
(0.006) (0.005) (0.006)
Di e si y 0.363
(0.322)
0.494*
(0.299)
0.171
(0.319)
o g_size (0.072)
1.219
0.083
(0.110)
0.236***
(0.068)
Nagelke ke R2 0.158 0.145 0.210
Numbe o obse a ions 272 269 270
No e: *, **, *** indica e s a is ical signi icance a he p ≤0.10, 0.05 and 0.01 le els, espec i ely. S anda d
e o s a e in pa en heses.
630 BONRATH and EULERICH
TABLE A6 Addi ional analyses - e hics.
Es ima ed esul s o he eg ession model abou e hics
Va iable Coe icien
asse _p o ec ion 0.327***
(0.114)
o g_imp o emen 0.179
(0.164)
oppo uni ies_mgm 0.234**
(0.113)
Leade ship 0.309***
(0.114)
Compliance 0.870***
(0.148)
Consul ing 0.144
(0.118)
Audi ing 0.235*
(0.141)
Finance 0.437*
(0.235)
Female 0.006
(0.004)
code_o _e hics 0.918***
(0.288)
Nagelke ke R2 0.322
Numbe o obse a ions 291
No e: *, **, *** indica e s a is ical signi icance a he p ≤0.10, 0.05 and
0.01 le els, espec i ely. S anda d e o s a e in pa en heses.
BONRATH and EULERICH 631
