An Analytical Model for External Auditor Evaluation of the Internal Audit Function Using Belief Functions

45 Pages Posted: 19 Oct 2006

See all articles by Vikram Desai

Vikram Desai

University of Central Florida - Kenneth G. Dixon School of Accounting

Robin W. Roberts

University of Central Florida - Kenneth G. Dixon School of Accounting

Rajendra P. Srivastava

University of Kansas - Accounting and Information Systems Area

Date Written: September 2006

Abstract

The primary purpose of this paper is to advance research in internal audit (IA) evaluation by developing an IA assessment model that considers interrelationships among specific factors used by external auditors when evaluating the strength of the IA function. The model is built on three factors previously identified by auditing standards and prior academic research: Competence, Work Performance, and Objectivity (SAS 65 1991; Messier and Schneider 1988; Krishnamoorthy 2002). Our model generates an overall judgment concerning the strength of the IA function that can aid the external auditor in assessing the reliability of a client's internal control system. Because evaluating the IA function entails a process of gathering items of evidence pertaining to each IA factor and aggregating the evidence to make an overall judgment, we develop the IA assessment model using a conceptual framework based on the prior literature and develop an analytical expression under the belief function framework. By using this framework, we overcome limitations of prior research regarding the modelling of interrelationships among factors and regarding difficulties in application. The results of our analysis revealed that modelling the "And" relationship is essential for assessing the strength of the IA function. As far as interrelationships are concerned, the analysis revealed that when the three factors have a strong or a perfect relationship, the strength of the IA function remains high even if we have positive or negative evidence about one of the factors. This result holds as long as we have high levels of beliefs about the other two factors.

Keywords: Internal Audit, Belief Functions, Evidential Reasoning Approach, Reliance Decision

JEL Classification: M49, C11, C51, G34

Suggested Citation

Desai, Vikram and Roberts, Robin W. and Srivastava, Rajendra Prasad, An Analytical Model for External Auditor Evaluation of the Internal Audit Function Using Belief Functions (September 2006). Available at SSRN: https://ssrn.com/abstract=938183 or http://dx.doi.org/10.2139/ssrn.938183

Vikram Desai (Contact Author)

University of Central Florida - Kenneth G. Dixon School of Accounting ( email )

University of Central Florida
P.O. Box 161400
Orlando, FL 32816-1400
United States

Robin W. Roberts

University of Central Florida - Kenneth G. Dixon School of Accounting ( email )

University of Central Florida
P.O. Box 161400
Orlando, FL 32816-1400
United States
407-823-2871 (Phone)
407-823-3881 (Fax)

Rajendra Prasad Srivastava

University of Kansas - Accounting and Information Systems Area ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States

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