Factors associated with IT audits by the internal audit function

Factors associated with IT audits by the internal audit function Mohammad J. Abdolmohammadi Scott R. Boss Bentley University

Outline • Introduction • Background and Research Questions • Model Specification • Research Method • Results • Discussion and implications • Summary • Conclusions/Future Research

Having an Internal Audit Function is unavoidable • Internal Audit Function (IAF) is increasingly a part of corporate governance • NYSE requires an IAF for listed companies • Regulations outside the US (Australia, UK, etc.) strongly encourage existence of IAF Introduction

Having an Internal Audit Function is unavoidable • Respondents in our data indicated that internal auditing was required: • 2006 – 56.4 percent • 2009 (estimated) – 66.1 percent Introduction

Impact of SOX (2002) on the IAF • Enormous strain on the most resources • External auditors are no longer allowed to provide consulting services • Documenting and evaluating internal control systems largely fallen to the IAF • IAFs are looking to “re-balance” their efforts • Less documenting • More testing Introduction

What are the costs? • Sufficient personnel • Personnel sufficiently trained • Personnel sufficiently trained in specialties that were previously handled by external auditors • IT Audits Introduction

IT Audits • An audit of computer-based aspects of information systems • AU 319.30 requires IT audits when there is/are a: • Complex systems that rely on IT controls • Significant change in IT systems (replacement) • Extensive data sharing between systems • Involvement in e-commerce • Use emerging technology • Significant portions of potential audit evidence is electronic Introduction

IT Audits • Typically auditors must possess specialized skills • Possibly specialized certifications • IT knowledge is essential for IT auditors to function effectively Introduction

The IAF and IT audits? • Is the IAF involved? • To what degree is the IAF involved? • How is the involvement compared to the past? • The future? • Which variables are potentially associated with IT audits by the IAF? • RQ1 – What proportion of IAFs’ time is spent on IT audits? Research Questions

Explanatory Variables • Do certifications have an effect on IT Audits? • Proxy for Skills/Technical knowledge • CISA certification • Other certifications? • RQ2a – CISA certification? • RQ2b – CIA certification? • RQ2c – CPA certification? • RQ2d – CMA certification? Research Questions

Explanatory Variables • Professional certifications require continuous professional education (CPE) • CIA’s – 80 hours/24 months • Only a portion likely to be technical training • RQ3 – Is basic and/or advanced technology training positively related to IT audits by IAFs? Research Questions

Explanatory Variables • Organizational knowledge • Experience within the firm • Longevity • RQ4 – Is the age of the IAF positively related to IT audits? Research Questions

Control Variables • Chief Audit Executive (CAE) characteristics • Experience (years) • Academic degree (grad vs. undergrad) • Academic major (CS/IS vs. other) • IAF Group (Old Commonwealth vs Non-Commonwealth • US (Non) • Australia, Canada, New Zealand, UK/Ireland (Old) • Size of the organization (not the IAF size) Research Questions

Model Specification • OLS Regression Model: ITAudit = α+ 1CISA + 2CIA + 3CPA + 4CMA + 5Training + 6IAFage + 7CAEexp + 8CAEDegree+ 9CAEMajor + 10Group + 11LnEmploy +ε Model Specification

Model Specification Model Specification

CBOK Database • Survey of internal auditors world-wide • Listing of issues of concern to the IAF • Populated by the Institute of Internal Auditors (IIA) • Utilized CAE responses (1,029) • Knowledge of the IAF • Knowledge about their staff Data

Data Characterization • 1,029 responses • US – 760 (74%) • Australia – 72 (7%) • Canada – 116 (11%) • New Zealand – 13 (1%) • UK/Ireland – 68 (7%) Data

Table 1Descriptive Statistics – RQ1 Results

Table 1 Descriptive Statistics – Explanatory Results

Training • Never • Less frequently than annually • More frequently than annually Results

Table 1 Descriptive Statistics – Explanatory Results

Table 1Descriptive Statistics – Control Results

Table 2Correlation Matrix Results

Models • Model 1 – CISA Certification • Model 2 – CIA Certification • Model 3 – CPA Certification • Model 4 – CPA Certification Results

Table 3OLS Regression (IT Audit as DV) Results

Summary • RQ1 • IT audit comprised 7.97 percent of IAF time in 2003, 10.61 percent in 2006 • Estimated to increase to 13.4 percent in 2009 • RQ2 • CISA positively related to IT Audits • CIA & CMA not associated with IT Audits • CPA negatively associated with IT Audits • RQ3 • IT training is positively associated with IT Audits • RQ4 • IAF Age and Organization size are positively associated with IT Audits Discussion & Implications

Conclusions • IAF involvement in IT audit is modest but increasing @ approximately one percent per year • IAFs should plan to increase their proportion of IT audits • IAF’s should consider hiring individuals with IT audit skills • IAF personnel should be provided with more extensive IT training Discussion & Implications

Future Research Questions • Why is the percentage of time on IT Audits so low? • What percentage of IAF should be IT Audit? • Is there a theoretical reason why CPA certification is negatively associated with IT audits? • Does industry impact IT audit involvement? • More in technology companies? Discussion & Implications

Future Research Questions • Other variables to include as IVs? • Should other responders (Audit managers, IA employees, etc) be included in future studies? • Examine culture • Examine professional rank differences • Does culture (a la Hofstede) play any role in IT audit involvement? Discussion & Implications

Questions/comments?

Factors associated with IT audits by the internal audit function