Internal Audit Effectiveness: Multiple Case Study Research Involving Chief Audit Executives and Senior Management

Abstract

The focus of this study is the relationship between chief audit executives (CAEs) and senior management (SM) and its relationship with internal audit (IA) effectiveness. The study reveals differences between more and less effective IA functions and offers explanations by studying organizational, personal, and interpersonal factors within the German corporate governance context. The findings show that the pattern of interaction between CAEs and SM is a key determinant of IA effectiveness. This study highlights the danger of viewing customer satisfaction as the key measure of IA effectiveness since in practice expectations can vary significantly and as sometimes very little may be demanded. Moreover, CAEs typically adjust to expectations, upward and downward. CAEs can drive the agenda as well. When it comes to personality factors, “Fingerspitzengefühl” and swimming in the organization characterize the successful internal auditor. IA designations for CAEs were not found to be of added value. At the organizational level, the findings show that companies that are considered as “hidden champions” demand and benefit from effective IA practices.

Notes

^1. According to a survey by the DIIR, the German Institute of Internal Auditors, 82% of CAEs in Germany report to the CEO, to a member of the SM team, or to the entire SM team (Eulerich, 2011).

^2. ISSAI 3000 (2004), issued by the International Organization of Supreme Audit Institutions, presents standards and guidelines for performance auditing in the public sector.

Additional information

Notes on contributors

Rainer Lenz

Rainer Lenz, PhD, CIA, QIAL, CIIA, is a seasoned financial and audit executive with over twenty years of international experience in global organizations. He can be reached at [email protected].

Gerrit Sarens

Gerrit Sarens, PhD, CIA, is a full professor in audit and governance at the Louvain School of Management (Belgium). He is the author of several books and articles on internal audit. He can be reached at [email protected].

Florian Hoos

Florian Hoos, PhD, is an assistant professor in accounting and management control at HEC Paris (France). He has won numerous awards, including the nomination as one of the worldwide 40 best business school professors under 40. He can be reached at [email protected].