'Serving Two Masters' and the Chief Audit Executive's Communication: Experimental Evidence About Internal Auditors’ Judgments

43 Pages Posted: 28 Jul 2013 Last revised: 15 May 2019

See all articles by Florian Hoos

Florian Hoos

HEC Paris - Accounting and Management Control Department

Natalia Kochetova

Saint Mary’s University - Sobey School of Business

Anne Christine d'Arcy

Vienna University of Economics and Business

Date Written: March 15, 2015

Abstract

The position of an internal audit function (IAF) as a “servant of two masters” (i.e., management and the audit committee) may lead to a conflict of priorities. In this setting, the tone at the top set by the Chief Audit Executive (CAE) plays a critical role in balancing the potentially competing priorities of the “two masters.” We test two hypotheses in a mixed experimental design with the communicated preferences of the CAE to subordinates (cost reduction vs. effectiveness of internal controls) as a between-subjects factor, and levels of ambiguity (low, medium, high) manipulated within-subjects. Findings suggest that the emphasis in the CAE’s message can influence internal auditors’ judgments, and such influence is more pronounced when task ambiguity is high, resulting in the elimination of a significantly greater number of internal controls and the design of less effective processes. We discuss implications of our results for modern IAFs and the role of the CAE.

Keywords: corporate governance, internal audit function, effectiveness, internal controls

JEL Classification: M42, G34, M48

Suggested Citation

Hoos, Florian and Kochetova, Natalia and d'Arcy, Anne, 'Serving Two Masters' and the Chief Audit Executive's Communication: Experimental Evidence About Internal Auditors’ Judgments (March 15, 2015). HEC Paris Research Paper No. ACC-2013-995, Available at SSRN: https://ssrn.com/abstract=2302269 or http://dx.doi.org/10.2139/ssrn.2302269

Florian Hoos (Contact Author)

HEC Paris - Accounting and Management Control Department ( email )

Jouy-en-Josas Cedex
France

Natalia Kochetova

Saint Mary’s University - Sobey School of Business ( email )

SB 318, Dept. of Accounting
Sobey School of Business, Saint Mary's University
Halifax, Nova Scotia B3H 3C3
Canada
902-420-5800 (Phone)
902-420-5011 (Fax)

Anne D'Arcy

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
369
Abstract Views
3,166
Rank
102,983
PlumX Metrics