Keywords

internal audit, management training ground, managers, board of directors, audit committee

Abstract

This study examines how using the internal audit function as a management training ground (MTG) impacts manager’s reliance on internal auditor recommendations. While prior research suggests that using internal audit as a MTG can adversely affect financial reporting quality, external audit fees, and internal audit efficiency, many internal audit functions use this practice. We study how this practice influences another important stakeholder—senior management. Based on survey results of 355 chief audit executives (CAEs), we find that CAEs perceive senior management to be more likely to use recommendations from MTG internal auditors than non- MTG internal auditors. To bolster the validity of these findings and provide evidence as to why this is the case, we conduct two experiments with 147 executives (47 MTurk workers) with an average of about 25 (13) years of experience. The experimental results confirm the survey results. We also find that the key reason why managers rely more on MTG than non-MTG recommendations is that MTG internal auditors are perceived to have more natural ability, which is a key driver in manager’s reliance decision. Taken together, our research provides the first empirical evidence that there are positive consequences to using the internal audit function as a MTG in contrast to the negative consequences previously reported.

Original Publication Citation

Carcello, J. V., M. Eulerich, A. Masli, and D. A. Wood. 2018. The value to management of using the internal audit function as a management training ground. Accounting Horizons, 32 (2): 121-140. DOI: 10.2308/acch-52046.

Document Type

Peer-Reviewed Article

Publication Date

2018

Publisher

Accounting Horizons

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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Accounting Commons

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