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A critical analysis of the independence of the internal audit function: evidence from Australia

Author

Listed:
  • Joe Christopher
  • Gerrit Sarens
  • Philomena Leung

Abstract

Purpose - This study aims to critically analyse the independence of the internal audit function through its relationship with management and the audit committee. Design/methodology/approach - Results are based on a critical comparison of responses from questionnaires sent out to Australian chief audit executives (CAEs) versus existing literature and best practice guidelines. Findings - With respect to the internal audit function's relationship with management, threats identified include: using the internal audit function as a stepping stone to other positions; having the chief executive officer (CEO) or chief finance officer (CFO) approve the internal audit function's budget and provide input for the internal audit plan; and considering the internal auditor to be a “partner”, especially when combined with other indirect threats. With respect to the relationship with the audit committee, significant threats identified include CAEs not reporting functionally to the audit committee; the audit committee not having sole responsibility for appointing, dismissing and evaluating the CAE; and not having all audit committee members or at least one member qualified in accounting. Originality/value - This study introduces independence threat scores, thereby generating analysis of the internal audit function's independence taking into account a combination of threats.

Suggested Citation

  • Joe Christopher & Gerrit Sarens & Philomena Leung, 2009. "A critical analysis of the independence of the internal audit function: evidence from Australia," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 22(2), pages 200-220, January.
    • Handle: RePEc:eme:aaajpp:v:22:y:2009:i:2:p:200-220
    DOI: 10.1108/09513570910933942
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    References listed on IDEAS

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    1. Stuart Turley & Mahbub Zaman, 2004. "The Corporate Governance Effects of Audit Committees," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 8(3), pages 305-332, June.
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