Priscilla A. Burnaby, CPA, PhD Bentley College Mohammad Abdolmohammadi, CPA, DBA Bentley College

1. Usage of Internal Auditing Standards by Companies in the United States and Select European Countries Priscilla A. Burnaby, CPA, PhD Bentley College Mohammad Abdolmohammadi, CPA, DBA Bentley College Susan Hass, Professor, CPA Simmons College Gerrit Sarens, PhD, CIA, CCSA Université Catholique de Louvain Marco Allegrini, PhD Università di Pisa

2. Objectives • To compare usage of the IIA’s Standards and Practice Advisories in: • Belgium • Italy • The Netherlands • The United Kingdom and Ireland • The United States of America

3. Regulations Requiring Internal Audit Activities • Laws • Sarbanes Oxley Act of 2002 – All those that have stock on the NYSE • King, 2002 – South Africa • Stock Exchanges • NYSE, 2004 • Central Banks and Supervisory Authorities throughout Europe • Basel Committee, 2004 • Many countries • Banca d’Italia, 1999 – Italy • CBFA, 1997 – Belgium • European Corporate Governance Codes • United Kingdom - Combined Code on Corporate Governance • Italy - Corporate Governance Code • Belgian - Corporate Governance Code • The Dutch Corporate Governance Code

4. Research Questions • RQ1: What is the level of usage of the Standards in Belgium, Italy, The Netherlands, the United Kingdom and Ireland, and the United States? • RQ2: Do Belgium, Italy, The Netherlands, the United Kingdom and Ireland, and the United States differ in their compliance with the Standards? • RQ3: Is guidance for usage of the Standards adequate? • RQ4: What is the level of usage of the Practice Advisories in Belgium, Italy, The Netherlands, the United Kingdom and Ireland, and the United States? • RQ5: What are the reasons for lack of compliance with the Standards? • RQ6:Are there differences in internal quality and improvement programs in Belgium, Italy, The Netherlands, the United Kingdom and Ireland, and the United States? • RQ7:Are there differences in external quality and improvement programs in Belgium, Italy, The Netherlands, the United Kingdom and Ireland, and the United States?

5. Research Methodology • Data was selected from the CBOK (2006) database • Due to missing data for some of the questions in the CBOK survey, usable responses may vary slightly for each question analyzed • Chi-square test

6. IIA Membershipas of September 30, 2006 *Provided by The IIA.

7. Participants’ Staff Levels (In Percentages) χ2 =56.68, p<.001

8. Age of Respondents(in Percentages) χ2 =56.88, p<.001

9. Highest Level of Respondents’ Education (in Percentages) χ2 =967.89, p<.001

10. Number of Years as an IIA Member (in Percentages) χ2 =119.26, p<.001

11. Respondents’ Professional Qualifications **When the number of observations is less than 5 in a cell,the Chi-square results should be interpreted cautiously.

12. Age of Respondents’ Organizations(in Percentages) χ2 =307.46, p<.001

13. Number of Years IAA Has Existed (in Percentages) χ2 =202.86, p<.001

14. (RQ1) Organizations’ Use of The Standards In Whole or In Part (in Percentages)

15. (RQ2) Full and Partial Compliance with the Standards (in Percentages)

16. (RQ3) Adequacy of Guidance Provided by Each of the Standards (in Percentages)

17. (RQ4) Adequacy of Practice Advisories(in Percentages)

18. (RQ5) Top Five Reasons for Lack of Compliance • Not perceived as adding value by management/board (11.5%) • Inadequate staff in the IAA (11.3%) • Too time consuming (10.0%) • Compliance not supported by management/board (9.7%) • Not appropriate for small organizations (9.2%).

19. Use of the Standards in Whole or in Part Compared to the Number of Full-Time Staff at Each Staff (in Percentages)

20. (RQ6) When IAA Was Last Subject to a Formal Internal Quality Assessment (in Percentages) χ2 = 89.275, p<.001

21. (RQ7) When IAA Was Last Subject to a Formal External Quality Assessment (in Percentages) χ2 =115.997, p<.001

22. Conclusions • Growth of the profession has been hastened by national regulation • Respondents age, education, time in the profession, and years of IIA membership vary by country • Age of organizations and of IAAs vary by country

23. Conclusions, continued • There is consistency within each country for the use of the Standards in whole or in part by staff level but variation by country • Significant differences exist between countries In the level of satisfaction with the adequacy of the guidance for all Standards and Practice Advisories, with the exception of Standards 1300 and 2600 • UK and Ireland are least satisfied with the Standards and Practice Advisories • Belgium is most satisfied with Standards guidance • Italy is most satisfied with the Practice Advisories

24. Conclusions, continued • Compliance with Standard 1300, Quality Assurance and Improvement Program and Standard 2600, Resolution of Management’s Acceptance of Risks, is universally limited • US has highest full compliance • Italy has lowest full compliance • Convincing management and the board of the value of the Standards is a significant challenge for many IAAs • Size of the audit staff affects usage of the Standards in Italy and the US