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Informal interactions between audit committees and internal audit functions: exploratory evidence and directions for future research
Mahbub Zaman
Managerial Auditing Journal. 2013;28(6):495-515.
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Abstract
Purpose:This paper recognises the importance of informal processes within corporate governance and complements existing research in this area by investigating factors associated with the existence of informal interactions between audit committees and internal audit functions and in providing directions for future research.Design/Methodology/Approach:To examine the existence and drivers of informal interactions between audit committees and internal audit functions, this paper relies on a questionnaire survey of chief audit executives (CAEs) in the UK from listed and non-listed, as wellas financial and non-financial, companies. While prior qualitative research suggests that informal interactions do take place, most of the evidence is based on particular organisational setting or on a very small range of interviews. The use of a questionnaire enabled the examination of the existence of internal interactions across a relatively larger number of entities.Findings:The paper finds evidence of audit committees and internal audit functions engaging in informal interactions in addition to formal pre-scheduled regular meetings. Informal interactions complement formal meetings with the audit committee and as such represent additional opportunities for the audit committees to monitor internal audit functions. Audit committees' informal interactions are significantly and positively associated with audit committee independence, audit chair’s knowledge and experience, and internal audit quality.Research limitations/implications:The paper is based on survey and solely reliant on the perception of CAEs. Further research examining the nature and quality of informal interactions, as well as the antecedents and consequences is needed. Research needs to move beyond providing evidence on existence (and/or increase or decrease) to examining the influence of institutional and organizational contexts on audit committees’ informal interactions. Originality/value:The results demonstrate the importance of the background of the audit committee chair for the effectiveness of the governance process. This is possibly the first paper to examine the relationship between audit committee quality and internal audit, on the existence and driver of informal interactions. Policy makers should recognize that in addition to formal mechanisms, informal processes, such as communication outside of formal pre-scheduled meetings, play a significant role in corporate governance.