The Association between Internal Audit Operations-Related Services and Firm Operating Performance
Auditing: A Journal of Practice & Theory, Forthcoming
Posted: 10 Dec 2016 Last revised: 25 Nov 2019
Date Written: June 5, 2019
In this paper, we examine whether operations-related services (ORS) provided by the internal audit function (IAF) bring economic benefits to firms. Using a sample constructed by matching a global internal auditor survey with public firms’ data in Compustat, we find that the extent of the IAF’s involvement in ORS has a significant positive association with operating performance. Further, by decomposing ORS into traditional assessment services (e.g., operational audit) and more business-oriented facilitation services (e.g., strategy consulting), we document that assessment services are prevalent in the IAFs whereas facilitation services are less frequent. Both types of services have a positive effect on operating performance. Moreover, we find that the positive relation between ORS and operating performance is only achieved for companies that follow a defender (as opposed to a prospector) business strategy and that extensively outsourcing internal audit activities reduces the positive effect of ORS on operating performance. Overall, our findings shed light on the current debate about the value added by the IAF.
Keywords: internal audit function, consulting services, operating performance, outsourcing, CBOK
JEL Classification: M4, M42, L25, G3
Suggested Citation: Suggested Citation