Skip to main content
SpringerLink
Log in

Internal Audits as a Source of Ethical Behavior, Efficiency, and Effectiveness in Work Units

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

This study of internal auditors and auditees, who engage in both financial and operational internal audits in Israel, extends theory and research on internal audits in organizational units. It develops and tests a model that examines the role of top management and internal auditors in facilitating learning from internal audits and driving perceived performance improvement. We argue that support from the top management for the internal audit as well as the auditor’s capacity (skills, resources, and behaviors) facilitate learning from audits and help audited units to improve ethicality, efficiency, and effectiveness in organizations. The results of time-lagged survey data provide general support for the hypothesized indirect relationships between auditor capacity, auditor–auditee relational exchanges, learning from audits, and three different perceived performance measures: ethical behavior, efficiency, and effectiveness. We discuss the implications for research on internal audits, proactive learning, ethics, and performance improvement of organizational units in the public sector.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. We thank an anonymous reviewer for pointing out this issue.

References

  • Aguinis, H. (2013). Performance management. Upper Saddle River, NJ: Pearson Prentice Hall.

    Google Scholar 

  • Ahlawat, S. S., & Lowe, D. J. (2004). An examination of internal auditor objectivity: In-house versus outsourcing. Auditing, 23(2), 147–158.

    Article  Google Scholar 

  • Albrecht, W. S., Howe, K. R., Stocks, K. D., & Schueler, D. (1989). How successful internal audit departments are evaluated. Financial Executive, 5(3), 39.

    Google Scholar 

  • Allen, R. D. (1996). Managing internal audit conflicts. Internal Auditor, 53, 58–61.

    Google Scholar 

  • Ancona, D. G., & Caldwell, D. F. (1992). Bridging the boundary: External activity and performance in organizational teams. Administrative Science Quarterly, 37, 634–665.

    Article  Google Scholar 

  • Arbuckle, J. L. (2011). IBM ® SPSS ® Amos™ 20 user’s guide. USA: Amos Development Corporation.

    Google Scholar 

  • Arel, B., Beaudoin, C. A., & Cianci, A. M. (2012). The impact of ethical leadership, the internal audit function, and moral intensity on a financial reporting decision. Journal of Business Ethics, 109, 351–366.

    Article  Google Scholar 

  • Arena, M., Arnaboldi, M., & Azzone, G. (2006). Internal audit in Italian organizations: A multiple case study. Managerial Auditing Journal, 21(3), 275–292.

    Article  Google Scholar 

  • Arena, M., & Azzone, G. (2009). Identifying organizational drivers of internal audit effectiveness. International Journal of Auditing, 13(1), 43–60.

    Article  Google Scholar 

  • Argote, L. (1999). Organizational learning: Creating, retaining, and transferring knowledge. Dordrecht: Springer.

    Google Scholar 

  • Bailey, A. D, Jr, Gramling, A. A., & Ramamoorti, S. (Eds.). (2003). Research opportunities in internal auditing. Altamonte Springs, FL: IIA Research Foundation.

    Google Scholar 

  • Bandura, A. (1977). Social learning theory. Englewood Cliffs, NJ: Prentice-Hall.

    Google Scholar 

  • Bar Nir, A. (1992). The internal audit: Normative perception, work patterns and related factors. Unpublished Master’s Thesis, Faculty of Social Science, Tel Aviv University, Tel Aviv.

  • Bar-Lev, I. (2010). The poppy seed fields. The Accountant, 23, 33–37.

    Google Scholar 

  • Bell, T. J, I. I. I. (2010). The social psychology of IT security auditing from the auditee’s vantage point: Avoiding cognitive dissonance. ISACA Journal, 3, 1–4.

    Google Scholar 

  • Bell, B. S., & Kozlowski, S. W. J. (2002). Goal orientation and ability: Interactive effects on self-efficacy, performance, and knowledge. Journal of Applied Psychology, 87, 497–505.

    Article  Google Scholar 

  • Berg, D. (1992). Audit style of the internal auditor and the auditee’s resistance to the auditing. Unpublished Master’s Thesis, Faculty of Management, Tel Aviv University, Tel Aviv.

  • Blakeney, R. N., Holland, W. E., & Matteson, M. T. (1976). The auditor-auditee relationship: some behavioral considerations and implications for auditing education. The Accounting Review, 51(4), 899–906.

    Google Scholar 

  • Blau, G. (1964). Exchange and power in social life. New York: Wiley.

    Google Scholar 

  • Bunderson, J. S., & Sutcliffe, K. M. (2003). Management team learning orientation and business unit performance. Journal of Applied Psychology, 88, 552–560.

    Article  Google Scholar 

  • Cardera, B., & Ragan, P. W. (2003). A survey-based system for safety measurement and improvement. Journal of Safety Research, 24(2), 157–165.

    Article  Google Scholar 

  • Carmeli, A., & Tishler, A. (2004a). Resources, capabilities, and the performance of industrial firms: A multivariate analysis. Managerial and Decision Economics, 25, 299–315.

    Article  Google Scholar 

  • Carmeli, A., & Tishler, A. (2004b). The relationships between intangible organizational elements and organizational performance. Strategic Management Journal, 25, 1257–1278.

    Article  Google Scholar 

  • Carmeli, A., & Zisu, M. (2009). The relational underpinnings of quality internal auditing in medical clinics in Israel. Social Science and Medicine, 68(5), 894–902.

    Article  Google Scholar 

  • Commission on Auditors’ Responsibilities. (1978). Report, Conclusions and Recommendations. New York: AICPA.

    Google Scholar 

  • COSO. (1992). IC-integrated framework-summary. Committee of Sponsoring Organizations of the tread way commission. Retrieved March 25, 2011, from http://www.coso.org/IC-IntegratedFramework-summary.htm.

  • Daugherty, B. E., & Tervo, W. A. (2008). Auditor changes and audit satisfaction: Client perceptions in the Sarbanes-Oxley era of legislative restrictions and involuntary auditor change. Critical Perspectives on Accounting, 19(7), 931–951.

    Article  Google Scholar 

  • DeAngelo, L. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183–199.

    Article  Google Scholar 

  • Deis, D. R, Jr, & Giroux, G. A. (1992). Determinants of audit quality in the public sector. The Accounting Review, 67, 462–479.

    Google Scholar 

  • Dittenhofer, M. (1997). Behavioural aspects of internal auditing “revisited”. Managerial Auditing Journal, 12(1), 23–27.

    Article  Google Scholar 

  • Eden, D., & Moriah, L. (1996). Impact of internal auditing on branch bank performance: A field experiment. Organizational Behavior and Human Decision Processes, 68, 262–271.

    Article  Google Scholar 

  • Eisenberger, R., Cummings, J., Armeli, S., & Lynch, P. (1997). Perceived organizational support, discretionary treatment, and job satisfaction. Journal of Applied Psychology, 82(5), 812.

    Article  Google Scholar 

  • Eisenberger, R., Huntington, R., Hutchison, S., & Sowa, D. (1986). Perceived organizational support. Journal of Applied Psychology, 71, 500–507.

    Article  Google Scholar 

  • Eisenberger, R., Stinglhamber, F., Vandenberghe, C., Sucharski, I. L., & Rhoades, L. (2002). ‘Perceived supervisor support: Contributions to perceived organizational support and employee retention. Journal of Applied Psychology, 87, 565–573.

    Article  Google Scholar 

  • Fayol, H. (1949). General and industrial management. London: Pitman Publishing Corporation.

    Google Scholar 

  • Festinger, L. (1957). A theory of cognitive dissonance. CA: Stanford University Press.

    Google Scholar 

  • Firth, M. (1990). Auditor reputation: The impact of critical reports issued by government inspectors. The Rand Journal of Economics, 21(3), 374–387.

    Article  Google Scholar 

  • Friedberg, A. (1995). Internal audit—“Organizational decoration”? The internal audit in Israel (p. 424). Jerusalem: Civil Service Commission.

    Google Scholar 

  • Funnell, W., & Wade, M. (2012). Negociating the credibility of performance auditing. Critical Perspectives on Accounting, 23, 434–450.

    Article  Google Scholar 

  • Giddens, A. (1984). The Constitution of Society. Cambridge: Polity.

    Google Scholar 

  • Gilbert, D. U., & Rasche, A. (2008). Opportunities and problems of standardized ethics initiatives—A stakeholder theory perspective. Journal of Business Ethics, 85(3), 755–773.

    Article  Google Scholar 

  • Ginosar, Y. (2011, March). Internal department. The Accountant, 104–107. [In Hebrew]

  • Glick, W. H. (1985). Conceptualizing and measuring organizational and psychological climate: Pitfalls in multilevel research. Academy of Management Review, 10, 601–616.

    Google Scholar 

  • Goodman, P. S., Ravlin, E., & Schminke, M. (1987). Understanding groups in organizations’. Research in Organizational Behavior, 9, 121–173.

    Google Scholar 

  • Gouldner, A. W. (1960). The norm of reciprocity: A preliminary statement. American Sociological Review, 25(2), 161–178.

    Article  Google Scholar 

  • Ha’elion, T. (1996). The mediating processes between internal audit and organizational performance improvement. An unpublished thesis. Faculty of Management, Tel Aviv University, Tel Aviv.

  • Homans, G. (1961). Social behavior: Its elementary forms. New York: Harcourt, Brace.

    Google Scholar 

  • ISACA. (2007). Control Objectives for Information and related Technology (COBIT) 4.1. Retrieved May 1, 2013, from http://www.isaca.org.

  • ISO, TMB, WG, SR. (2006). Participating in the future International Standard ISO 26000 on social responsibility. Geneva: International Organization for Standardization.

    Google Scholar 

  • Johnson, R. E., Rosen, C. C., & Djurdjevic, E. (2011). Assessing the impact of common method variance on higher order multidimensional constructs. Journal of Applied Psychology, 96, 744–761.

    Article  Google Scholar 

  • Kahn, W. A. (1990). Psychological conditions of personal engagement abd disengagement at work. Academy of Management Journal, 33, 692–724.

  • Karcher, J. N. (1996). Auditors’ ability to discern the presence of ethical problems. Journal of Business Ethics, 15(10), 1033–1050.

    Article  Google Scholar 

  • Kline, R. B. (1998). Principles and practice of structural equation modeling. New York: The Guilford Press.

  • Koh, H. C., & Woo, E. (1998). The expectation gap in auditing. Managerial Auditing Journal, 13(3), 147–154.

    Article  Google Scholar 

  • Kozlowski, S. W. J., Gully, S. M., Nason, E. R., & Smith, E. M. (1999). Developing adaptive teams: A theory of compilation and performance across levels and time. In D. R. Ilgen & E. D. Pulakos (Eds.), The changing nature of performance: Implications for staffing, motivation, and development (pp. 240–292). San Francisco: Jossey-Bass.

    Google Scholar 

  • Kozlowski, S. W. J., & Klein, K. J. (2000). A multilevel approach to theory and research in organizations: Contextual, temporal, and emerging processes. In K. J. Klein & S. W. J. Kozlowski (Eds.), Multilevel theory, research and methods in organizations: Foundations, extensions, and new directions (pp. 3–90). San Francisco: Jossey-Bass.

    Google Scholar 

  • Lamberti, L., & Lettieri, E. (2009). CSR practices and corporate strategy: Evidence from a longitudinal case study. Journal of Business Ethics, 87(2), 153–168.

    Article  Google Scholar 

  • Liden, R. C., & Graen, G. (1980). Generalizability of the vertical dyad linkage model of leadership. Academy of Management Journal, 23(3), 451–465.

    Article  Google Scholar 

  • Liggio, C. D. (1974). The expectation gap: The accountant’s Waterloo. Journal of Contemporary Business, 3(3), 27–44.

    Google Scholar 

  • Light, P. C. (1993). Monitoring government: Inspectors general and the search for accountability. Washington, DC: Brookings Institution Press.

    Google Scholar 

  • Lin, S., Pizzini, M., Vargus, M., & Bardhan, I. R. (2011). The role of the internal audit function in the disclosure of material weaknesses. The Account Review, 86(1), 287–323.

    Article  Google Scholar 

  • Ma’ayan, Y. (2008). The relationship between management support, auditee behavior, and the impact of the internal audit process. An unpublished thesis. Faculty of Social Science, Bar-Ilan University, Ramat-Gan.

  • Mints, F. (1972). Behavioral patterns in internal audit relationships. Altamonte Springs, FL: The Institute of Internal Auditors Research Foundation.

    Google Scholar 

  • Monaghan, H. M. (2007). An assessment of the quality of single audits: the national single audit sampling project. Journal of Government Financial Management, 56(4), 22.

    Google Scholar 

  • Moriah, L. (1993). The impact of internal auditing in financial organization on performance. An unpublished thesis. Faculty of Management, Tel Aviv University, Tel Aviv.

  • Morris, F. (2014, March 27th). History Gives Other Cases of G.M.’s Behavior. The New York Times.

  • Murray, M. N. (1995). Sales tax compliance and audit selection. National Tax Journal, 48, 515–530.

    Google Scholar 

  • O.A.G. Office of the Auditor General. (2004). Internal Audit in Departments and Agencies—Internal audit needs to be strengthened and professionalized—November 2004. Retrieved June 11, 2011, from http://www.oag-vg.gc.ca/internet/English/mr_20041123_e_15336.html.

  • O.A.G. Office of the Auditor General. (2011). June Status Report of the Auditor General of Canada. Retrieved June 11, 2011, from http://www.oag-bvg.gc.ca/internet/English/parl_oag_201106_03_e_35371.html.

  • Pearsall, M. J., & Ellis, A. P. J. (2011). Thick as thieves: The effects of ethical orientation and psychological safety on unethical team behavior. Journal of Applied Psychology, 96, 401–411.

    Article  Google Scholar 

  • Penini, G., & Carmeli, A. (2010). Auditing in organizations: A theoretical concept and empirical evidence. Systems Research and Behavioral Science, 27(1), 37–59.

    Google Scholar 

  • Pickett, K. H. S., & Pickett, J. M. (2010). The internal auditing handbook. West Sussex: Wiley.

    Google Scholar 

  • Podsakoff, P. M., MacKenzie, S. B., & Podsakoff, N. P. (2012). Sources of method bias in social science research and recommendations on how to control it. Annual Review of Psychology, 63, 539–569.

    Article  Google Scholar 

  • Porter, B. (1993). An empirical study of the audit expectation-performance gap. Accounting and Business Research, 24(93), 49–68.

    Article  Google Scholar 

  • Preacher, K. J., & Hayes, A. F. (2008).  Asymptotic and resampling strategies for assessing and comparing indirect effects in multiple mediator models. Behavior Research Methods, 40, 879–891.

  • Reynolds, S. J., & Ceranic, T. L. (2007). The effects of moral judgment and moral identity on moral behavior: An empirical examination of the moral individual. Journal of Applied Psychology, 92(6), 1610–1624.

    Article  Google Scholar 

  • Rhoades, L., & Eisenberger, R. (2002). Perceived organizational support: A review of the literature. Journal of Applied Psychology, 87, 698–714.

    Article  Google Scholar 

  • Satava, D., Caldwell, C., & Richards, L. (2006). Ethics and the auditing culture: Rethinking the foundation of accounting and auditing. Journal of Business Ethics, 64, 271–284.

    Article  Google Scholar 

  • Schein, E. H. (1996). Three cultures of management: The key to organizational learning in the 21st century. Sloan Management Review, 38(1), 9–20.

    Google Scholar 

  • Schwartz, M., Dunfee, T., & Kline, M. (2005). Tone at the top: An ethics code for directors? Journal of Business Ethics, 58, 79–100.

    Article  Google Scholar 

  • SEC. (2003). Report pursuant to the section 704 of the Sarbanes-Oxley Act of 2002. Washington: Securities and Exchange Commission.

  • Shapeero, M., Koh, H. C., & Killough, L. N. (2003). Underreporting and premature sign-off in public accounting. Managerial Auditing Journal, 18(6/7), 478.

    Article  Google Scholar 

  • Sikka, P., Filling, S., & Liew, P. (2009). The audit crunch: reforming auditing. Managerial Auditing Journal, 24(2), 135–155.

    Article  Google Scholar 

  • Simonin, B. L. (1997). The importance of collaborative know-how: An empirical test of the learning organization. Academy of Management Journal, 40, 1150–1174.

    Article  Google Scholar 

  • Soltani, B. (2014). The anatomy of corporate fraud: A comparative analysis of high profile American and European corporate scandals. Journal of Business Ethics, 120, 251–274.

    Article  Google Scholar 

  • Stata, R. (1989). Organizational learning: The key to management innovation. Sloan Management Review, 30(3), 63–74.

    Google Scholar 

  • Stead, W. E., Worrell, D. L., & Stead, J. G. (1990). An Integrative Model for Understanding and Managing Ethical Behavior in Organizations. Journal of Business Ethics, 9, 233–242.

    Article  Google Scholar 

  • The IIA. (1999). What is internal auditing? The Institute of Internal Auditors. Retrieved April 20, 2011, from http://www.theiia.org/theiia/about-the-profession/internal-audit-faqs/?i=1077.

  • The IIA. (2010). The IIA—The Institute of Internal Auditors. Retrieved April 23, 2011, from http://www.theiia.org/theiia/.

  • Wade, M. J. (2008). The credibility of ANAO performance audit. Doctor of Philosophy thesis, University of Wollongong, Wollongong. Retrieved, from http://ro.uow.edu.au/theses/1913.

  • Wang, H., Law, K. S., Hackett, R. D., Wang, D., & Chen, Z. X. (2005). Leader-member exchange as a mediator of the relationship between transformational leadership and followers’ performance and organizational citizenship behavior. Academy of Management Journal, 48(3), 420–432.

    Article  Google Scholar 

  • Weick, K., & Sutcliffe, K. (2001). Managing the unexpected. San Francisco: Jossey Bass.

    Google Scholar 

  • Wood, D. J., & Wilson, J. A. (1988). Stress and coping strategies in internal auditing. Managerial Auditing Journal, 3(2), 8–16.

    Article  Google Scholar 

  • Woods, M., Humphrey, C., Dowd, K., & Liu, Y.-L. (2009). Crunch time for bank audits? Questions of practice and the scope for dialogue. Managerial Auditing Journal, 24(2), 114–134.

    Article  Google Scholar 

Download references

Acknowledgments

We wish to thank the associate editor and three anonymous reviewers for their helpful comments and suggestions. We also thank Esther Singer for her editorial comments. We also thank Dr. Even-Zohar for his help with the statisitical analysis. The second author acknowledges the financial support of the Henry Crown Institute of Business Research in Israel at the Faculty of Management, Tel Aviv University.

Author information

Authors and Affiliations

  1. Faculty of Social Science, Bar-Ilan University, Ramat Gan, 52900, Israel

    Yahel Ma’ayan

  2. Faculty of Management, Tel Aviv University, Ramat Aviv, Tel Aviv, Israel

    Abraham Carmeli

Authors
  1. Yahel Ma’ayan
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Abraham Carmeli
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Abraham Carmeli.

Appendix

Appendix

See Table 3.

Table 3 Measurement items
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Ma’ayan, Y., Carmeli, A. Internal Audits as a Source of Ethical Behavior, Efficiency, and Effectiveness in Work Units. J Bus Ethics 137, 347–363 (2016). https://doi.org/10.1007/s10551-015-2561-0

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-015-2561-0

Keywords

Search

Navigation