This is a public auditing article  public

This topic includes articles such as…

  • Jennifer M Mueller-Phillips
    Internal auditors’ use of interpersonal likability, a...
    research summary posted July 20, 2015 by Jennifer M Mueller-Phillips, tagged 08.0 Auditing Procedures – Nature, Timing and Extent, 08.11 Reliance on Internal Auditors in Auditing Section Research Summaries Space public
    Title:
    Internal auditors’ use of interpersonal likability, arguments, and accounting information in a corporate governance setting.
    Practical Implications:

    The findings illustrate how and when internal auditors can achieve agreement from managers using tactics that can be effective even when the underlying information supporting their position is not particularly strong. The findings should also be informative to external auditors, managers, researchers, and others interested in influencing managers’ judgments and corporate governance. The study can help develop a theory about day-to-day behavioral factors that drive variance in internal auditors’ influence over managers’ judgments.

    Citation:

    Fanning, K., & David Piercey, M. 2014. Internal auditors’ use of interpersonal likability, arguments, and accounting information in a corporate governance setting. Accounting, Organizations & Society 39 (8): 575-589.

    Keywords:
    internal auditors, interpersonal relations, corporate governance, disclosure of information
    Purpose of the Study:

    In this study, the authors examine how three variables, each fundamental to internal auditors’ interactions with managers, explain internal auditors’ influence on managers’ judgments:

    1. Internal auditors’ interpersonal likability,
       
    2. The underlying information supporting their positions, and
       
    3. Their use of thematically organized arguments to present that information to managers.

    Internal auditors tend to interact with managers frequently, and are “often the party primarily responsible for the day-to-day monitoring of management’s actions, including those related to external financial reporting.” Internal audit lacks the client services incentives of external audit, allowing internal auditors to adopt a “policeman approach,” which places little emphasis on positive interpersonal interactions with managers as clients, compared to external audit. The “police” approach to internal audit can harm the managerinternal auditor relationship. A dysfunctional relationship between managers and internal auditors is a contributing cause, and in some cases, a primary cause of a variety of accounting problems, including material weaknesses, financial restatement, regulatory compliance, and the like. 

    Design/Method/ Approach:

    The experimental case within places participants into the role of a mid-level manager who provides input to a controller about whether the value of inventory should be written down in the financial statements as obsolete. The authors recruited managers, executives, and other professionals in management training programs to participate in the study. The 133 participants averaged 8.5 years of professional business experience and 4.4 years of managerial experience. The evidence was gather prior to 2014.

    Findings:

    The authors found that because people find the thematically structured flow of an argument appealing, and because positive affective states lead to heuristic processing, managers will heuristically agree more with an internal auditor who is both likable and uses an argument structure, beyond the effects of how supportive or unsupportive the internal auditor’s information is of his position.

    • Managers agree more with an auditor who uses more supportive information than one who uses less supportive information.
    • However, beyond that, they also agree more with an internal auditor who is both likable and uses a thematically organized argument structure, regardless of whether the information presented is relatively supportive or unsupportive of the internal auditor’s
      position.
    • The results demonstrate that an internal auditor can achieve (on average) agreement from managers simply because he is likable and uses a flowing argument structure, even when the underlying information is relatively unsupportive and managers otherwise (on average) do not to agree with the internal auditor.

    Overall, the findings suggest that internal auditors can achieve additional agreement from managers on important corporate governance issues, above and beyond how supportive or unsupportive their information is, by using an argument structure and likability jointly, as a fairly straightforward presentation tactic.

    Category:
    Auditing Procedures - Nature - Timing and Extent
    Sub-category:
    Reliance on Internal Auditors