Does Incentive-Based Compensation for Chief Internal Auditors Impact Objectivity? An External Audit Risk Perspective
| Autor: | Gary F. Peters, Jinyoung P. Wynn, Lucy Huajing Chen, Hyeesoo Hyun Chung |
|---|---|
| Rok vydání: | 2016 |
| Předmět: |
Economics and Econometrics
Auditor's report 050208 finance Actuarial science business.industry 05 social sciences Walk-through test Chief audit executive Accounting 050201 accounting Audit risk Auditor independence External auditor Internal audit Joint audit 0502 economics and business Business skin and connective tissue diseases Finance |
| Zdroj: | AUDITING: A Journal of Practice & Theory. 36:21-43 |
| ISSN: | 1558-7991 0278-0380 |
| DOI: | 10.2308/ajpt-51575 |
| Popis: | SUMMARY This paper considers the potential impact of internal audit incentive-based compensation (IBC) linked to company performance on the external auditor's assessment of internal audit objectivity. We posit that external auditors will view IBC as a potential threat to internal audit objectivity, thus reducing the extent of reliance on the work of internal auditors and increasing the assessment of control risk. The increase in risk and external auditor effort should result in higher audit fees. We hypothesize that the form of incentive-based compensation, namely stock-based versus cash bonuses, moderates the association between IBC and external audit fee. Finally, we consider whether underlying financial reporting risk mitigates the external auditor's potential sensitivity to IBC. We find a positive association between external audit fees and internal audit compensation based upon company performance. The association is acute to IBC paid in stock or stock options as opposed to cash bonuses. We also find evidence consistent with the IBC associations being mitigated by the company's financial reporting risks. Data Availability: Individual survey responses are confidential. All other data are derived from publicly available sources. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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