Exploring the scientific landscape of internal audit research: A

bibliometric analysis

Joel Behrend, University of Duisburg-Essen ∗

Marc Eulerich, University of Duisburg-Essen

July 2018

Abstract

Addressing the heavily increased attention on internal auditing in the post-SOX era, this paper aims

to unravel the scientific metamorphosis of the topic within current accounting research, including

the different scientific subareas that define it. In an attempt to extent the scant body of literature

reviews that has focused on the internal audit function (IAF), we pursue an empirical approach to

analyze the scientific structures and provide a variety of directions for future internal audit research.

In this context, citation patterns extracted from 170 research articles published in five major ac-

counting journals are being studied by combining co-citation and social network analysis in order

to investigate different existing research domains of internal auditing and to discover the core work

that has been done in this area. The scientific landscape of internal auditing can be characterized

as profoundly fragmented and deeply rooted in different adjacent domains of accounting research.

Identified subcategories from which research on internal auditing is derived can be summarized as

Corporate Governance, Auditor Independence, Auditing Professionalization, Audit Committee Ef-

fectiveness, Reliance on Internal Auditing, Internal Control over Financial Reporting, and finally

the Regulatory Framework. Additionally, results reveal the existence of a pivotal nucleus of research

that emphasizes the increasingly important construct of internal audit quality. The focus of this

study lies on the analysis of major accounting journals, namely The Accounting Review, Contempo-

rary Accounting Research, Journal of Accounting Research, Journal of Accounting Economics and

Accounting, Organizations and Society and is restricted to the years from 1926 to 2016.

Keywords: Internal Audit, Internal Audit Function, Bibliometrics, Co-citation analysis

Data Availability: Please contact the authors.

∗ Corresponding author: Mercator School of Management, University of Duisburg-Essen, Lotharstr. 65, 47057 Duisburg,

Germany. We thank David Wood and participants of the 2018 Annual Congress of the European Accounting Association,
the 2018 Annual Accounting Conference, and the 2018 Auditing Section Midyear Meeting for many helpful comments and
suggestions.

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1. Introduction

Internal auditing has recently been steering towards a focal point. During times of increased uncertainty

in the face of ongoing fraud scandals and more complex business environments, firms are constantly

pressured to readjust and enhance their own risk prevention mechanisms. By definition of the Institute

of Internal Auditors (IIA), internal auditing serves as an ”independent, objective assurance and consult-

ing activity designed to add value and improve an organization’s operations. It helps an organization

accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the

effectiveness of risk management, control, and governance processes” (IIA, 1999). In this context, the

internal audit function (IAF) constitutes an integral part in the organisation’s risk management frame-

work. Especially in the aftermath of severe post-millenial breakdowns of S&P 500 firms (e.g., Enron

(2001), WorldCom (2002)) internal auditing’s importance and legitimacy flourished due to regulatory

changes such as Sarbanes-Oxley Act (SOX) of 2002, revised auditing standards by the PCAOB and

expanded provisions by the NYSE (e.g., Carcello, Hermanson, & Raghunandan, 2005a; Peterbridge &

Messier, 2016). Yet, fueled by the subsequent financial crisis, there has been growing criticism concerning

the direction towards which the assurance providing function has been evolving. Questioning the actual

added value and suggesting a lack of measures to gauge its effectiveness, academics, practitioners as well

as the broader public have laid the foundation for a continuing discussion of a transformed role of the

IAF (see for example Sarens, 2014; Lapelosa, 2004; KPMG, 2009).

In the course of this reflection process, several neuralgic points are brought up consistently and are

urged to be addressed by the profession in the near future. While the IAF’s value proposition, for

example, seems to be inherently intertwined with the question of its ultimate stakeholder, profound re-

consideration of the identity-establishing tenets of the function is tenaciously declared a necessary step.

That is, determining ”to whom internal auditing should be accountable (the perspective from which its

added value is judged) and clarifying/concentrating the internal auditing’s service offering (its purpose)”

(Lenz & Sarens, 2012, p. 533). Similar attention is drawn to the future-oriented transformation of

existing IAF activities, apprehended as an incremental emphasis on risk management and corporate gov-

ernance, much the same as a resource-efficient and integrated process coordination with other providers

of assurance (e.g., compliance or risk management; idealized as a concept of cross-functional combined

assurance), while the introduction of new audit technologies is constantly deemed a pressing necessity

(Jackson, 2013).

Drilling this conception further down to an even more practice-oriented level, the IIA’s 2016 Global

Pulse of Internal Audit survey (IIA, 2016) encourages future-oriented IAF members to assume the

progressively transformed role of a ”trusted advisor”, meaning that internal auditors should attain a

recognized status of an insightful and anticipatory service provider with functionally adequate formal

2
and informal ties to the board and executive management. Efforts are also undertaken to pay particular

heed to emerging high risk topics for internal auditors, such as cyber security and especially big data

audits, as well as the importance of providing assurance on issues related to the firm’s internal culture.

To what extent such issues, that evoke a substantial metamorphosis of internal auditing, are incorporated

into the scientific exchange of the research community, however, is difficult to pinpoint.

The scientific status and relevance of internal auditing, as epitomized by the exisiting body of litera-

ture, has been dealt with in different influential and knowledge aggregating overview articles. Gramling,

Maletta, Schneider, and Church (2004) consider the IAF’s role as a distinct resource to the remaining

governance framework parties within the organization while essentially emphasizing determinants which

influence the IAF relationship towards the external auditor. Bame-Aldred, Brandon, Messier, Ritten-

berg, and Stefaniak (2013) establish an organizing framework based on a rich body of literature which

captures factors and conditions affecting the decision making process of the external auditor concerning

reliance on the IAF during financial statement audits. Chalmers, Hay, and Khlif (2018), in a detailled

review on internal control literature, identfy internal auditing as an integral component of organizations’

internal control environment due to its instrumental role in affecting internal control quality. Further-

more, effort has been made to shed light on the concept of measuring observable added value of internal

auditing activities. While Arena and Azzone (2009) approach the effectiveness construct in a survey

based approach, focussing solely on the viewpoint of auditors, Lenz and Hahn (2015) tackle the issue in

a rather practice-oriented literature analysis involving perspectives of both the internal auditors them-

selves as well as the group of stakeholders that draw upon internal auditing services. Using professional

guidance on internal auditor objectivity and independence as a framework, Stewart and Subramaniam

(2010) follow a different approach by matching recent literature with the concepts of IIA Standards 1010

and 1100. Worth mentioning is also a broader stream of studies connected to the survey-based Com-

mon Body of Knowledge (CBOK) on the current status and perception of internal auditing on different

continents (for an overview see Appendix A).

What most of the aforementioned review studies have in common is that only a relatively narrow

strand of literature on internal auditing is being analyzed qualitatively against the backdrop of a chosen

concept. While systematic literature analyses like these usually serve the purpose of answering specific

questions or hypotheses (e.g., Khlif and Chalmers, 2015), ”broader questions may require the use of other

tools from the social scientists’ toolbox” (Petticrew and Roberts, 2006). Despite the fact that this field

of research has made rapid progress in the recent past (Arena and Sarens, 2015), insights remain scarce

about the scientific emergence and structure regarding the multifaceted domain of internal auditing.

Moreover, as particular subareas of this research field have undergone closer investigation, only little has

contributed to fit these parts into a bigger picture of auditing or even accounting research; thus neglecting

the opportunity for a critical assessment of the research community’s core issues. As a consequence, it

3
is the intent of this paper to provide a holistic overview on the current status and prior development of

internal audit research in the highly impactful international journals in accounting. We contribute to

the existing literature recapitulated above by illustrating the scientific landscape of research on the IAF

and its defining moments. Moreover, our results highlight relevant topics presented through the lens of

the research community in the form of citations that stem from highly influential publications. We are

also able to draw implications in the form of potential avenues of future research.

Additionally, we seek to identify and highlight key literature and individuals that affected the course

of internal audit research, as it is our goal to assess the current state of sovereignity this area has attained.

At the same time, this facilitates a deeper understanding of the research domain for authors who are yet

unfamiliar with research about the IAF. We do this not only to track the origins of internal audit research,

but also because ”influential works represent the building blocks of the language that academics use to

communicate” (Dunbar and Weber, 2013). This approach is inspired by the concept of metaknowledge,

which encourages analytical pattern analysis of disseminated knowledge in order to identify regularities in

scientific claims (Evans and Foster, 2011). Notwithstanding the benefits of traditional literature reviews,

we therefore introduce a rather unorthodox and statistics-oriented approach to make research in this

area visible and to gain a deeper understanding about the shape and disciplinary boundaries of this field.

The basic structure of this paper is organized as follows. In the next section, the chosen research

approach as well as the data selection process is presented. Section 3 covers our basic results comprising

the descriptive developments of internal audit publications and the scientific research community. In

section 4 we present our results of the co-citation and network analysis and discuss a variety of findings

regarding the current status of internal audit research. This is followed by a brief introduction of several

potential future research avenues that emerge from the analysis. Finally, we discuss the major results of

our study and infer central implications.

2. Methodology

2.1. Co-citation and network analysis

We use bibliometric network analysis to investigate the cognitive landscape of internal audit research.

According to Steven (1983), bibliometrics encompass the exploration of published research output, e.g.,

of a branch of science or a country of interest, on a quantitative level. Additionally, it is a common tool

which provides a basic raster to characterize the amount of literature used in a certain field of research

on a qualitative level.

Therefore, bibliometric analysis makes it possible to informatively map the evolution and main areas of

a specific research field over a defined span of time by processing the patterns within published documents

and converting them into sound distributions (White and McCain, 1989; Raisig, 1962; Pritchard and

4
Wittig, 1981). In this context, co-citation analysis, as a bibliometric technique, allows for a categorization

of articles, books or similar written scientific communication based on the co-appearance of their indexed

references (e.g., Small, 1973).

Technically, the frequency of co-appearance of two or more indexed references in publications defines

the strength of content related association attributed to them (i.e., the more often referenced sources

are cited together in publications, the stronger their abstracted match of content). Furthermore, orga-

nizing co-cited documents into clusters1 and matching content related documents with each one of them

establishes a research front within the built citation-network (Boyack and Klavans, 2010). As seen in

prior studies (e.g., White and McCain, 1998; Culnan, 1986, p. 223), mapping the final results allows

it to visualize and demonstrate emerging specialties and paradigms of research within the discipline of

interest.

Applied correctly, co-citation analysis leads to an unfolding of the ”speciality structure of science”

(Sullivan, White, and Barboni, 1977) which represents the formal communication and perception of

scientists within the network (Small and Griffith, 1974). Core literature in various emerging or yet un-

established fields of research has undergone analysis with the aid of co-citation and network analysis.

Pilkington and Meredith (2009) for example identify different defining knowledge groups in the area of

operations management based on co-citation analysis and notice a change in popularity of intermittently

dominant topics depicted by the groups between 1980 and 2006. Servantie, Cabrol, Guieu, and Boissin

(2016), in a similar approach, seek to legitimize international entrepreneurship as a definable research

area. Evaluating a rich literature based data set, the authors show that the scientific correspondence in

this field diffuses into five central knowledge clusters that make international entrepreneurship clearly

distinguishable from its mother disciplines. Other examples illustrate how the aforementioned bibliomet-

ric method can be applied to delimit the boundaries and intellectual developments of already matured

research areas, revealing looming research trends and opportunities (e.g., Culnan, 1986; Hansen and

Vogel, 2010).

From a methodogical viewpoint, co-citation analysis yields the advantage of an objective intra-

community evaluation tool as citations traditionally represent the recognition of individual contribu-

tions by the scientific community, casually paraphrased as ”the field’s view” (White and Griffith, 1981).

External and often reputation based expert opinions therefore become redundant. Hertzel (1987) pro-

vides a thorough overview on the evolution of bibliometrics and the usefulness of co-citation analysis in

particular.

However, White (2011) points towards possible constraints of citation based network analysis con-

sidering the omission of the amount, quality and therefore impact of scientific output of publishing indi-

viduals or affiliated institutions. We address this issue by adding a descriptive dimension to our paper
1 ”Acluster, in social network analysis, is a set of points that are judged to be similar with respect to some relational
property. ’Similarity’ is a relative term and points can be more or less similar” (Scott, 2013).

5
which considers highly influential institutions and individuals on the basis of publications in prestigious

accounting journals.

To ensure meaningful and informative inferences related to our data, we use co-citation analysis

in combination with network analysis as a method to graphically display the structure of the citation

data. In a first step we therefore constructed a symmetric co-citation matrix with n × n dimensions

that documents the amount of times cij that one of the extracted references i has been cited together

with another reference j within the collected set of referencing articles. Applying the same method, we

additionally measure author collaboration by extracting and documenting the combination of authors

that were associated with each of the referencing articles. In order to comprehensibly illustrate the

co-citation and collaboration strength between documents and authors, we applied the visualization of

similarities mapping technique (Van Eck and Waltman, 2007; Van Eck, Waltman, Dekker, and Van den

Berg, 2008).2 Our results are hereby displayed as two-dimensional distance-based maps implying stronger

relationships between closely situated items (i.e., cited documents or authors) and weaker similarity for

items, located comparatively farther apart.3

As for the final visualization, the network of co-citations or collaborating authors can be displayed

in two different ways. The labeling option positions documents and authors as nodes within the two

dimensional map. The size of the node is determined by the total link strength of the item equaling

the sum of co-citations or collaborations with any other item within the network. Connections between

nodes represent the links (i.e., the number of co-citations or collaborations of two documents or authors).

A thicker link indicates a higher interaction frequency between two items. A second visualization option

is the density view where nodes are represented as colors within the map, illustrating the amount of

adjacent items that are close by and exhibiting areas of intense citations or collaborations (Van Eck and

Waltman, 2010). We use VOSviewer software to visualize our network.

2.2. Collection of data

Considering prior work that applies citation-based methods (Dunbar and Weber, 2013; Dyckman and

Zeff, 1984; Servantie et al., 2016), we limit our research to major accounting research journals (Brown

and Gardner, 1985) and use keywords to identify relevant articles. Based on the 2016 Financial Times

research ranking, we focus on the most highly ranked accounting journals. Our selection is confirmed by

various additional sources such as the ABS Journal Guide and various scientific studies (see, e.g., Bonner,

Hesford, Van der Stede, and Young, 2006, for an overview). Our intention is to document the type of
2 We decided against the utilization of multidimensional scaling, which is a commonly used method in this context, because
we find that the algorithm applied within the visualization of similarities (VOS) mapping technique holds several advan-
tages (e.g., monotonic relatedness of the similarity measure) that lead to more fitting results when analyzing co-occurrence
data (see Van Eck and Waltman, 2009). Compared to programs such as Pajek or SPSS, an additional advantage of the
VOSviewer software lies in the intuitive overlay which facilitates data interpretation and visibility ((for a comparison, see,
Van Eck and Waltman, 2009).
3 For a more detailed explanation of the methodological steps, see Appendix B.

6
research that is published in highly cited and influential sources that embody the current meta in terms

of research methodology and relevance of topics. The five journals of choice therefore are Accounting,

Organizations and Society (AOS), Contemporary Accounting Research (CAR), Journal of Accounting

and Economics (JAE), Journal of Accounting Research (JAR) and The Accounting Review (TAR). We

assume that these capture the driving forces of accounting and especially audit research and consequently

define what is important in the context of internal auditing as its subordinate research domain. The

Table 1: Data collection and analysis process

Preliminary analysis Identification of articles with a) a clear focus on internal auditing

b) that devote to internal auditing within at least a subsection
c) that consider the IAF in any other way (e.g., contain the IAF as a variable)
Sources AOS (1975 - 2016), CAR (1984 - 2016), JAE (1978 - 2016), JAR (1963 - 2016), TAR (1926 - 2016)
Databases EBSCOhost, JSTOR, ScienceDirect, SCOPUS, Wiley
Keywords internal audit(ing), internal audit function, internal control
Result 170 articles between 1926 and 2016

Data collection (1) Elicitation and analysis of relevant data from articles:
(Author, Organizational affiliation, Country of affiliation, Research method, Year of publication)

Data collection (2) Extraction of cited references from each article via the SCOPUS database or manually
Total extracted citations: 6,842
Citations with missing title or author: 1,348
Manually supplemented citations: 3,059
Result 6,826 citations overall, (5,113 unique references)

Network preparation Computation of a 5,113 x 5,113 co-citation matrix and coding of data to visualize results within VOSviewer
Result Mapped co-citation network consisting of 230 highly co-cited references

data retrieval process comprised the examination of every single journal issue and was done by searching

article titles and keywords that matched with the terms internal audit(ing), internal audit function or

internal control. If necessary, abstracts and complete articles were scrutinized if they covered auditing or

corporate governance topics presumably related to internal auditing or internal controls. Subsequently,

extracted articles were reviewed and included in the study if they matched one of the three categories

(a) b) or c)) shown in Table 1. As mentioned earlier, we believe that internal audit research has only

recently gained further prominence and its emerging relevance is reflected within adjacent research areas

such as corporate governance or external auditing. We further argue that although internal auditing

plays a rather peripheral role in some of the articles, their inclusion yields invaluable information about

the boundaries and existing transitions into closely related research fields of the discipline. We assume

that corresponding citations contain information about work which is considering the IAF as a valuable

contributor to the study, and is therefore shaping the context in which internal auditing has a recognizable

impact.4 As Table 1 documents, selected articles were listed in an Excel spreadsheet that recorded the
4A possible bias of results is further mitigated by adjusting boundaries when determining minimum co-citation strengths
for the final network (see section 4).

7
fundamental information for the descriptive analysis in section 3. Additionally, 6,842 citations from 170

articles from 1926 up until 2016 could be downloaded from the SCOPUS5 database. However, due to

missing data the final set of citations consisted of 5,113 references that were in total cited 6,827 times.

15 citations had to be dropped due to missing data. The methodology applied to analyze the citations

is further described in section 4.

3. Descriptive results

3.1. Research activity

The distribution of published articles in the accounting journals indicates a growing relevance of internal

audit issues within the analyzed time span of 91 years. Figure 1 summarizes the publication activity

of the five accounting journals from 1926 until 2016. On average, two articles per year are published

during this time phase. Infrequent publications before the year 1942 are followed by a period of highly

volatile attention towards the topic between 1940 and 2005. With the establishment of the Institute of

Internal Auditors (IIA) in 1941, a relatively steep increase in the number of articles becomes observable

that contentwise deal with different aspects of the assurance and consulting function. On average, 1.7

publications per year can be observed during the episode from 1942 to 1960. 19 percent (32 documents)

of all 170 articles are published during this time frame. In the subsequent decades we find a similar

distribution (1.7 articles on average per year between 1960 and 2004) but for a comparatively longer

phase of time and a larger body of literature (75 articles, which equals 44 percent of the total 170

publications). By reviewing the articles we find evidence that professionalization and regulatory changes

constitute main incentives for scientific research during the time after the establishment of the IIA. As

Figure 1: Distribution of published articles

10

0
0

0
193

194

195

196

197

198

199

200

201

Publications Moving average

Fernald (1943) states in his brief introduction of the internal assurance provider, the revised ”Regulation

S-X” by the Security Exchange Commission (SEC) can bee seen as a regulatory milestone in the sense
5 As stated on the website, Scopus is ”the largest abstract and citation database of peer-reviewed literature”.

8
that it mandatorily required the external auditor to consider the adequacy of the IAF in his evaluation of

the internal control structure of listed clients for the first time (see also Carey, 1940; Sweet, 1940).6 Other

reasons for the growing importance of internal auditing are ascribed to the economic challenges of World

War II (e.g., McNamee and McNamee, 1995; Perry, 1944; Teitelbaum, 1954). A focus on economies of

scale and a growing decentralization combined with an increase in global activities of large firms sparked

the demand for a management support function that at the same time provided much needed oversight

over remote business units. However, standing out saliently within the first decade, as outlined by the

publication frequency of documents, the foundation of the IIA and the accompanying development of

the internal auditing profession stimulated research studies before and after 1941. Discussions about the

necessity of Standards, preparatory training and a guiding auditing framework dominate the scientific

discourse concerning the actual contribution and scope of responsibilities of the Institute during this

time (e.g., Andreae, 1947; Atkisson, 1946; Campfield, 1960, 1965; Kent, 1955; Meigs, 1951).

As manifested by the the highest concentration of published articles in the field of internal auditing,

the period from 2005 to 2016 marks the pinnacle of research involving the IAF in the five accounting

journals. With a total of 56 publications within the mentioned time span, the yearly number of sci-

entific contributions averages 4.7. The endorsement of the Sarbanes-Oxley Act is undeniably the most

impactful regulatory change that ignites research endeavors in the early twenty-first century. Especially

the banning of non-audit services (including internal auditing) provided by the incumbent auditor; the

mandatory guidelines concerning the arrangement and responsibilities of audit committees as well as

provisions addressing the heightened accountability of management and the auditor for the evaluation

and attestation of effective internal controls over financial reporting - constituted in SOX Sections 201,

301 and 404 respectively - mark central pillars of research that include the IAF (e.g., Abbott, Parker,

Peters, and Rama, 2007; Abbott, Parker, and Peters, 2010; Beasley, Carcello, Hermanson, and Neal,

2009; Bédard and Graham, 2011; Prawitt, Sharp, and Wood, 2012a). The gap of three years between

the actual endorsement of SOX and the observed rise of scientific publications can be explained by the

often time-consuming publishing process, ranging from the stage of initial conceptualization to the final

acceptance of an article.

Although we only find indirect evidence for this argument, we also consider the financial crisis as an

influential event related to the growing relevance of internal auditing.7

6 The revision of some of the rules regarding the conduct and audit of companies’ financial statements dates back to one of
the biggest corporate accounting scandals of this decade, namely the failure of internal controls of the pharmacy company
McKesson and Robbins Incorporation in 1938 (Baxter, 1999; Barr and Galpeer, 1987; Bealing, Dirsmith, and Fogarty,
1996).
7 Reference is made to the foundation of the Financial Stability Board (FSB) in 2009, whose guiding ”Principles for an
Effective Risk Appetite Framework” (FSB, 2013) hold important implications for internal audit activities (e.g., Leech,
2015).

9
3.2. Characteristics of the internal auditing research community

In the light of prevalent discussions about the importance of social capital and cooperative networks

within research, we briefly analyze the development of co-authorships within the internal audit research

community. Scientific collaboration, in terms of intensified cooperation, such as co-authorships or invisi-

ble colleges, has been a rapidly expanding trend during the past decades (Ettredge and Wong-on Wing,

1991; Katz and Martin, 1997). Often associated with emerging issues of increased complexity, interinsti-

tutional and international collaboration is a manifestation of the developing specialization of scientific

competencies and expertise (Bush and Hattery, 1956). Manifold advantages such as shared knowledge

and technological resources as well as diverse experiences of strong professional networks yield valuable

synergies whose importance is emphasized by the notion that they define contemporary scientific and

technological human capital (Bozeman and Corley, 2004; Juma et al., 2001; Katz and Martin, 1997;

Melin, 2000).

Despite the fact that academic authorship as a measure of scientific contribution and cooperation has

been subject to controversy, due to the fact that informal and undocumented exchanges of knowledge

are being neglected (see Broad, 1981), it remains a widespread and valid method to analyze scientific

cooperation and is therefore used in this study (reference is made to Laudel, 2002; Subramanyam, 1983).

The analysis of 170 articles indicates an incremental trend towards collaborative work within the

scientific community of internal auditing. Single authorships dominate publications between 1926 and

1968. 91 percent of all internal audit related articles during this time were authored by a single person.

It is not until the early seventies that we register a slight increase in the number of authors per article,

which then however is a lasting trend as reflected by the corresponding average of about 1.6 from 1968

until 2000 (54 % single authorships; 30 % two authors; 16 % three or more authors).

The percentage of single authorships during the early twenty-first century decreases to six percent

whereas about 54 percent of all articles are being associated with three authors. However, the most

notable growth is recognizable for articles written by at least four authors, as they increase from almost

zero during the preceding decades to around twenty percent between 2000 and 2016. The average number

of authors per article throughout the mentioned period is 2.9.

Taken together, the incremental increase in co-authorships signalizes a thriving collaboration and

interest in the topic of internal auditing. This notion is reinforced by the consistently growing number of

total authors in this subfield of accounting research as we note an increase from 1.04 authors on average

per year for the first 45 years (1926 - 1970) to an average number of 2.67 for the subsequent and almost

equally long time span.

Further analyses of the publications with regards to authorship and productivity reveal that more

than eighty percent of authors never include internal auditing more than once in their line of research.

10
Only a minority of 39 authors publish at least two times on the topic in the analyzed journals and roughly

one percent devote more than three articles to the audit domain.

To add a further dimension, we analyze the network of collaborating authors which is mapped in Fig-

ure 2. While we identify 273 contributing authors overall, the network itself consists of 205 collaborating

authors who have at least once co-authored with another researcher within the set of 170 articles. The

205 authors are spread throughout 57 clusters that represent the collaborative research groups that are

shaping the field of internal auditing within the selected accounting journals.

Figure 2: Heat map of the collaboration network

We concentrate on the density visualization of the network for two reasons. On the one hand, we find

no existing links between the 57 collaborating groups indicating an absence of measurable interaction

between the individual research groups. More than sixty percent of the identified authors do not col-

laborate with more than two other authors and if they do, it is less then three times. This again might

support our notion that the scientific internal auditing community is still in its infancy and the research

field itself is not perceived as relevant enough either by the respective journal editors or by potential

authors. This condition might also be attributable to the overall low acceptance rates for the analyzed

journals (e.g., Wood, 2016), causing a relocation of research activities into other publication outlets that

have, for example, a stronger focus on auditing (e.g., Auditing A Journal of Practice and Theory) or

higher acceptance rates.

On the other hand, the density view facilitates a better understanding of the network structure

11
and unveils three highly active groups of interacting researchers that can be found at the left, right,

and bottom areas of the network. It becomes apparent that D.A. Wood is a central figure within the

research community having links to nine different researchers with whom he has published with between

one and three times in the top accounting journals. We find that eighteen other actors have either direct

or indirect ties to this central researcher and are therefore part of the cluster. The complete list of

authors including their average link strength (indicating their average collaboration times with another

researcher) reads as follows:

• D.A. Wood (1.33); G. Peters (1.57); L. Abbott (2); S. Parker (2); A. Masli (1); D. Prawitt (1.5);

N. Sharp (1.25); W.F. Messier (1); D.V. Rama (1); J.K. Reynolds (1); V.J. Richardson (1); J.M.

Sanchez (1); C.A. Simon (1); M.H. Christ (1); B. Daugherty (1); A. Schneider (1); J. Smith (1);

S. Glover (1); N. Wilner (1).

While a researcher in this group has on average about four co-authorships with other members, he rarely

collaborates more than once (1.26 times on average) with each of them. This means that he or she belongs

to a group that exhibits relatively high interaction and contribution within the observed network, where

an average author collaborates with approximately two separate authors for not more than once.

The second group surrounding Y. Gendron and J.C. Bédard consists of 13 authors who on average

collaborate with 2.77 other authors within the cluster. A higher concentration is observable for the third

group surrounding T. Neal and J.V. Carcello in which nine authors on average publish together with 3.56

authors for 1.13 times. We find that these three groups exhibit the highest activity in terms of interacting

members and collaboration frequency. We conjecture that there might be interrelated links between the

identified groups when adding additional (auditing) journals as context, suggesting the existence of one

highly impactful group of authors who dominate the research field of internal auditing. Impact, in this

case, is not measured in terms of citations but as network strength, translated as number and frequency

of co-authorships. Table 2 presents the most influential authors with respect to publication activity and

network presence.

Table 2: Influential authors

Name Publications Co-authors Avg. link Affiliation

strength
Wood, D.A. 5 9 1.33 Brigham Young University
Maletta, M.J. 5 5 1.40 Northeastern University, Boston
Peters, G.F. 4 7 1.57 University of Arkansas
Gendron, Y. 4 6 1.00 Université Laval
Abbott, L.J. 3 4 2.00 University of Wisconsin, Madison
Schneider, A. 3 2 1.00 Georgia Institute of Technology
Parker, S. 3 4 2.00 Santa Clara University
Prawitt, D. 3 4 1.5 Brigham Young University

12
 We additionally gathered information about the affiliated institutions for most of the authors and

were able to match data from 147 of the 170 articles. Overall, we identified 139 different organizations

that were affiliated with researches 297 times across all publications. 130 of these organizations were

identified as academic institutions such as universities. Our findings (as summarized in Appendix C)

highlight the twenty most frequently mentioned institutions in terms of affiliations.

In a final step, we divided our set of articles into three periods of nearly equal length to illustrate

parallel trends that resemble the general evolution of accounting research. Our findings (see Appendix D)

exhibit the distribution of articles as classified into six basic research approaches (see, Smith, 2014) over

the three periods. As additional information, we added source titles as a second dimension to emphasize

the impact of certain journals in comparison to others.

We find evidence that archival based studies tend to be the dominant way of conducting internal

audit research, not only in three of the five accounting journals, but also throughout the entirety of our

analyzed set of articles. Constituting about 41 percent of the 170 studies, archival data based methods

equal the aggregated proportion of experimental, qualitative and conceptual approaches altogether.8

Last-mentioned methodology accounts for the same percentage of articles as survey-based ones (both 16

percent), whereas qualitative and mixed-methods seem to be the least favored methods as they make up

for only a small proportion of internal audit related studies (nine and four percent respectively). Given

the strong governance context in which internal auditing is being discussed, the dominance of archival

methods seems unsurprising as a relationship between governance input and output factors is a common

and reliable means of emphasizing the importance of the former (Carcello, Hermanson, and Ye, 2011).

Especially in internal auditing, however, it seems to be vital to introduce a lot more interview, field, and

case studies considering the firm induced differences of IAFs and the resulting specialities (for example

the decision to focus more on either assurance or consulting) in practice.

Overall, our results give evidence for the existence of a widely spread research community that, with

special regards to the past two decades, shows signs of consolidation, manifesting itself in the increased

number of collaborations and more frequent publications by certain authors. Within the analyzed top

journals, however, internal auditing remains a niche topic which is often times not touched upon more

than once by a vast majority of researchers. A possible explanation might be that internal auditing is

not perceived as a fruitful and standalone field of research because of its status of infancy (DeFond and

Zhang, 2014). We do recognize a changing trend during the past two decades, however, given the fact

that most of the authors with more than one contribution have published within this time frame. Despite

the fact that archival methods seem to successfully pave the way for an internal audit related publication

in one of the top five journals, the question of content related significance is yet to be answered; namely

what is perceived as valuable and established to allow for a citation in the analyzed journals.
8 We refer to qualitative research as either field work or case study approaches (see Smith, 2014).

13
4. Bibliometric results

4.1. Citation analysis

As a preceding step to the analysis of combined citations, an examination concerning the basic citation

frequency of the 5,113 unique references was undertaken. The distribution pattern of the latter regarding

their respective citing sources corresponds to common theories on citation frequencies of scientific evi-

dence.9 To be more specific, about 82.4 percent of all sources were cited only a single time while about

11.11 percent were cited twice. Moreover, about 3.11 percent of the sources were referenced three times

and, with less then four percent, 175 of the total 5.113 citations appeared four or more times within the

set of articles. Therefore, a high concentration of citations for a small fraction of the total amount of

documents can be concluded.

As for the composition of general subject matters, a strong impact of regulatory provisions and

standards evoked by the SEC becomes apparent. Being cited twenty times, the public law 107-204

(Sarbanes-Oxley Act) is by far the most frequently cited element within the set of referential articles.

Especially Section 404, which addresses the responsibility of management to implement and assess an

adequate internal control structure (as well as associated procedures), serves as a consistently mentioned

springboard for the increased attention towards internal auditing. With Auditing Standard No. 5 being

the second most cited source originating from a regulatory context, its remarks concerning the considera-

tion of the IAF’s work by the external auditor indicate a profound and implicit importance of regulatory

developments for research in the internal auditing domain.10

Listed in Table 3, the remaining articles almost invariably scrutinize the role of each governance con-

stituent, namely the IAF, the audit committee as well as the board and the external auditor, in the

context of earnings management or fraud (e.g., Beasley, Carcello, Hermanson, and Lapides, 2000). Com-

plementing the extensive debate on the determinants of the external auditor’s fee, Felix, Gramling, and

Maletta (2001), in their consideration of the IAF as an important contributor to the financial statement

audit, add yet another empirically evidenced dimension to the discussion.

Regarding the date of publication, sources published before 1990 largely deal with factors influencing

the external auditor’s decision to consider internal audit work. Laying the early groundwork for the then

continually expanding IAF evaluation criteria, competence, objectivity and work performance, Schneider

(1984) and Schneider (1985) are among the first studies that entrenched this crucial concept of internal
9 Foran example see Zipf-Pareto’s law in Yablonski, Zimmerman, Kass, and Becker (1980): ”It is always possible to single
out a small number (the ”nucleus”) of specialized journals that carry the main informational load of the field under study,
and a vast number of peripheral journals that are sometimes quite remote from this scientific discipline. The same applies
also to other disciplinary parameters: scientific contacts, citation networks, etc.”.
10 With the previous version of Auditing Standard No. 5, AS No. 2, being cited eight times in total, we find even stronger
evidence for the influence of regulating Standards. However, due to differences in content we decided to segregate citations
for both Standards, which is why AS no. 2 is not listed in Table 3.

14
 Table 3: Most frequently cited documents

Document label Citations Document type Subject-matter

Sarbanes-Oxley Act (2002) 20 Law Public law concerning the protection of investors
by an improved accuracy of financial statements
Auditing Standard No. 5 (2007) 13 Standard Audit of internal control over financial reporting
that is integrated with an audit of financial statements
Brown (1983) 12 Article Evaluation of the IAF by the external auditor (SAS No. 9)
Felix/Gramling/Maletta (2001) 12 Article Internal auditing as a determinant of the external audit fee
Frankel/Johnson/Nelson (2002) 12 Article Effect of non-audit fees on earnings management
Schneider (1984) 12 Article Evaluation of the IAF by the external auditor (SAS No. 9)
Schneider (1985) 12 Article Evaluation of the IAF by the external auditor (SAS No. 9)
Cohen/Krishnamoorthy/Wright (2002) 11 Article Audit services as part of Corporate Governance
Dechow/Sloan/Sweeney (1996) 11 Article Earnings management and SEC enforcement
Abbott (1988) 10 Monograph The system of professions: An essay on the division of labor
Beasley et al. (2000) 10 Article Fraud and Corporate Governance

audit quality attributes within research.

Additionally, the Abbott (1988) source sheds light on the general concept of modern professionalism

by examining various ”professionalized groups” that exhibit a discernible form of power through expert

knowledge as a distinctive characteristic; therefore forming a critical piece within the actual corpus of

knowledge in the sense that its ideas seem to influence the process of internal audit professionalization

from a scientific viewpoint.

Figure 3: Cited authors and institutions

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The notion of a fundamental regulatory influence on internal audit research corresponds to the analysis

of highly cited authors (see Figure 3), as a strong presence of governmental and standard setting bodies,

namely the AICPA (131 times cited), the SEC (69 times cited), the IIA (68 times cited), and finally the

PCOAB (49 times cited) is observable. For the SEC alone 48 different endorsed or published documents

have been cited 69 times between 1976 and the end of 2016. A divergent pattern applies to documents by

the American Institute of CPAs, which is listed as a ”corresponding author” in 82 documents that were

15
cited 131 times. Upon closer examination, the ”Statement on Auditing Standards No. 65: The auditor’s

consideration of the internal audit function in an audit of financial statements” (AICPA, 1990) can be

identified as a core document as it is being cited almost twice as many times as the remaining publications

by the AICPA. Interestingly, we do not find the IIA to be the most frequently cited professional body

in our list, as the 45 associated publications are being cited 68 times in total. With six citations, the

”Standards for the professional practice of internal auditing” is the most prominent IIA source within

the set of citation data.

Considering the non-institutional authors, a large proportion of cited sources associated with J. R.

Francis deals with the constitution of the audit market and revolves around topics devoted to deter-

minants of the audit price (e.g., Ferguson, Francis, and Stokes, 2003; Francis and Simon, 1987) and

nonaudit services (Francis, 2006). As a rare exception, DeFond and Francis (2005) address the rela-

tionship between the audit committee and the IAF (although on a brief side note) in an outsourcing

context within their extensive synthesis on post SOX audit research. A stronger focus on internal au-

diting is observable for the Raghunandan, Rama, and Read (2001) study, who in their most frequently

cited article critically scrutinize the composition of audit committees including the interrelationship with

the IAF as ”a valuable resource that can provide the information needed for audit committees to meet

their governance mandate” (Raghunandan et al., 2001, p. 106). Overall, and in consideration of the

remaining frequently cited authors, mixed evidence in terms of IAF relatedness can be found, as most

of the associated documents focus on different governance protagonists that regularly interact with the

IAF.11

4.2. Co-citation and cluster analysis

To discuss the scientific structures in a broader context, we analyze the co-citation patterns within the

6,827 citations that were extracted from the initial 170 referencing articles. As mentioned above, our

co-citation matrix for the calculation of the two-dimensional map consists of 5,113 unique references. The

visualization of frequently cited combinations of referenced documents and their citation links provides

a comprehensive overview on the body of research that characterizes and therefore shapes how internal

auditing in the top accounting journals is studied and what is perceived as important by the research

community. In order to avoid ambiguous or vague results by including any co-cited items, we set the

minimum link strength to three. This means that for a document to be included in the final network,

it has to be cited together with another document for at least three times within our set of referencing

journal articles. Although we register a general lack of theoretical guidance for the optimal link strength,

our chosen value eliminates a lot of random noise by reducing our network to a consistent core of 230
11 Inclear contrast to this stands D. A. Wood, who concentrates on the topic of internal auditing in almost 80 percent of
his cited work which contextualizes the IAF in varying scenarios. Also, M. Power stands out as the only non-US author
when it comes to institutional affiliation for the 18 most cited authors and institutions.

16
documents that are being co-cited on average 3.4 times with another network constituent. On another

note, we find that raising the threshold to a value above three substantially reduces the information

content of the network, thereby aggravating the interpretation of the mapped output considerably.

The results of the final co-citation network are exhibited in Figure 4. We apply cluster analysis for

the mapped documents based on co-citation strength with adjacent and therefore similar documents. A

cluster in that sense represents a group of closely positioned items within the network. This technique has

the underlying assumption that distinguishable subdomains of the studied research field are identifiable

based on the intensity of co-citation activities within the network (Small and Griffith, 1974). As a result

of this, we are able to divide the 230 network nodes into eight different clusters. Each one of them

constituting a cognitive element within the internal audit research frame. The publication distribution

per cluster has a mean of 28.8 and a standard deviation of 8.2.

Figure 4: Co-citation network

An in-depth analysis of the cluster items regarding the content and structure made it possible to discern

the central themes that characterize each cluster. Presuming that both the number of studies on a topic

as well as their impact within the network indicate the importance of a certain topic, we chose the two

as relevant evaluation criteria to denote each clustering of co-cited documents. For the sake of clarity, we

focus our subsequent remarks on the more important documents in terms of cluster representativeness

and network impact. Additionally, extensive implications are provided for a majority of network clusters.

Each of the eight clusters is themed and concisely resumed as follows:

17
 • Cluster #1: Corporate Governance

Most of the cited cluster documents focus on issues related to corporate governance. Forming the the-

oretical groundwork within this cluster, Fama and Jensen (1983), Jensen (1993) as well as Jensen and

Meckling (1976) address the issue of ownership and control separation in a business related principal

agent setting. Conversely, by relying almost entirely on quantitative data, more recent studies em-

pirically investigate the association between the most important governance constituents and earnings

management or fraudulent behavior under the umbrella term of financial reporting quality. While the

specific role, interrelationship, and composition of the audit committee and the board of directors is

being discussed extensively (e.g., Bédard, Chtourou, and Courteau, 2004; Beasley, 1996; Carcello and

Neal, 2003; Abbott, Parker, and Peters, 2004; DeFond, Hann, and Hu, 2005), only peripheral references

can be found that involve the external auditor in this scenario (e.g., Carcello and Neal, 2000; Abbott

and Parker, 2000; Francis, Maydew, and Sparks, 1999).

The three integral works of this cluster are the Klein (2002), Dechow, Sloan, and Sweeney (1996) and

Beasley et al. (2000) studies. With regard to earnings management, the former two focus on shedding

light on common motives, such as attraction of cheap external financing, and problematic company

charactersitics; essentially boiling the latter down to a prevalence of weak corporate governance structures

(e.g., lack of audit committees and outside blockholders as well as a lack of sufficiently independent audit

committee and board members). While the two central studies fit seamlessly into the aforementioned

discussion, Beasley et al. (2000) confirms but extends their governance related sphere by considering the

IAF’s crucial support function for the audit committee as an additional fraud prevention mechanism in

technology, healthcare, and financial services industries. We find similar remarks by Vafeas (2005), who

in their endnotes refer to the Report and Recommendations of the Blue Ribbon Committee on Improving

the Effectiveness of Corporate Audit Committees (BRC) pointing towards the strong relevance of the

IAF. Because the BRC report can also be found within the network, we conclude that it holds important

implications for the increasing relevance of the IAF within contemporary corporate governance research.

After summarizing the majority of influential documents contained in this cluster, it is evident that

the amount of cited archival studies that acknownledge the role and activities of internal auditors in the

context of corporate governance research remains sparse. Despite the fact that a limited number of pe-

ripheral works are eager to emphasize the steadily growing role internal auditors play in the governance

setting, most of the studies refrain from considering the IAF as a determinant of financial statement

quality altogether (e.g., Klein, 2002; Dechow et al., 1996; Bédard et al., 2004). On the other hand,

sporadic efforts to capture and control for internal audit presence are recognizeable, for example, in

instances where audit committee characteristics are being analyzed (e.g., Abbott et al., 2004). Unsur-

prisingly, Abbott et al. (2004) are unable to find a significant association between IAF presence and

financial statement restatements as they simultaneously cite inconstant and vague company disclosures

18
about the function as reasons for potential inaccuracies of their measure.

Similar to the observed notion prevalent among external auditors (e.g., Cohen, Krishnamoorthy, and

Wright, 2010, p. 780), authors of influential studies in the field of corporate governance seem to more

hesitantly than intuitively recognize internal auditing as a core element of the governance framework.

The first cluster is consequently limited in its ability to go beyond defining the broad and highly nuanced

spadework that underlies IAF related articles published in the examined accounting journals.

• Cluster #2: Auditor Independence

Being the second largest cluster which consists of overall 40 items and focuses solely on external auditing

issues, herein contained documents comprehensively deal with factors potentially compromising auditor

independence such as non-audit services (Simunic, 1984; Parkash and Venable, 1993; Firth, 1997; DeFond,

Raghunandan, and Subramanyam, 2002; Ashbaugh, LaFond, and Mayhew, 2003; Chung and Kallapur,

2003; Francis, 2006) and the general pricing of audit services (DeAngelo, 1981; Palmrose, 1986; Larcker

and Richardson, 2004; Reynolds, Deis, and Francis, 2004). A substantial proportion of the discussion

is consequentially dedicated to the spillover versus economic bonding argument; contrasting knowledge

transfers from audit to non-audit services with the possibility of (perceived) impaired auditor indepen-

dence (and consequentially low quality financial audits) caused by the supplier-customer relationship

between the auditor and the auditee (Davis, Ricchiute, and Trompeter, 1993; Simunic, 1984). Posing

an equally important threat to auditor independence, acts of auditor lowballing (i.e., auditors charging

audit fees below total current engagement costs to attract profitable follow-up engagements (e.g., con-

sulting)) are another major issue which is studied within this cluster (DeAngelo, 1981). Moreover, being

pigeonholed as a potential threat to auditor independence by both regulators and legislators (Securities

and Exchange Commission (SEC), 2000), internal audit services as part of the external auditor’s service

portfolio are being closely examined within the cluster. Kinney, Palmrose, and Scholz (2004), for exam-

ple, analyze audit and non-audit fees for 617 financial statement restating SEC registrants and compare

them to a sample of matched nonrestating registrants between 1995 and 2000. Subdividing total audit

fees of restating companies into six different categories (audit, financial information system design and

implementation, audit-related, internal audit, tax, and unspecified services), the authors find no posi-

tive significant relationship between incurred costs for internal audit services provided by the incumbent

auditor and Form 10-K or Form 10-Q restatements. In addition, the authors note that while generally

only a small minority of examined registrants obtain internal audit related services (5%), related fees of

the latter account, on average, for about less than one percent of companies’ total audit fees. Overall,

no signs of independence impairing effects regarding financial statement quality in presence of externally

provided internal audit services are being reported.

Furthermore, by investigating the association between different audit firm characteristics and audit

fees, Palmrose (1986) is one of the early cluster constituents to factor in internal audit services as client

19
side efforts (e.g., amount of internal audit services) and to empirically demonstrate a negative impact

such efforts exert on audit fees.

Following a similar line of thinking while presenting, as the author proclaims to be, the first empirical

evidence (Wallace, 1984, p. 20) that companies’ internal audit investments partly determine external

audit fees, Wallace (1984) is a pioneer study that documents and quantifies potential cost benefits of

instances where external auditors rely on either work outcomes or direct assistance of internal audit

departments.

Based on the composition of the general set of cluster items, we discern an existing linkage between

the auditor independence discussion and internal audit services in the form of external non-audit services.

The cluster also bears early evidence of internal audit services as a possible determinant of external audit

fees. We therefore infer potential theoretical implications of the auditor independence and pricing debate

for internal auditing research when considering that the cited items partly define the knowledge base of

the internal audit research community. We do however acknowledge the fact that both the amount and

insights of the aforementioned cluster studies can at best be described as scratching the surface of internal

audit research. The cluster items ultimately reflect upon the debate of external auditor independence

and the pricing of related services. Consequently, we interpret this cluster as being indicative of a point

of origin of internal audit relevance within the analyzed accounting journals.

• Cluster #3: ”Internal Auditing Nucleus”

As the centerpiece of the network, cluster #3 represents a nexus of highly co-cited literature that concen-

trates to a great extent on the IAF in varying contexts. Additionally, it contains the most contemporary

IAF research topics as 16 of the 31 documents were published between 2006 and 2011 and 93 percent

(29 of the 31 documents) between 2001 and 2011. As displayed in Figure 4, the cluster is intertwined via

co-citation links with every other cluster of the network except for cluster #4, indicating its overarching

relevance. In terms of impact, six of the top twenty co-cited documents stem from this cluster (see

Table 5) with Felix, Gramling, and Maletta (2001) being the study which excels as the most frequently

co-cited document of the network. Contemplating the relationship between the IAF’s contribution to

financial statement audits and audit fees, the authors find evidence for a cost reduction of external audits

especially when IAFs of perceived high quality are involved. More specifically, the findings imply that

included firms which were to increase financial statement related allocations of internal audit resources

from zero to 26.57 percent (mean of the data set) would obtain decreases in audit fees of approximately

18 percent. Using both internal and external auditor responses, the authors are able to cover a broad

set of data from 70 firms across 29 different industries.

Further extending this view, Prawitt, Smith, and Wood (2011) come to the conclusion that direct

assistance of internal auditors during financial statement audits significantly reduces audit fees in contrast

to auditors simply relying on IAFs’ performed tasks related to such audits.

20
 Also, the interplay between the two providers of audit services seems to be a topic of major interest

within this fraction of the network as two additional items, namely Glover, Prawitt, and Wood (2008) and

Messier, Reynolds, Simon, and Wood (2011), study the interrelationship between internal and external

auditing and how it is affected by IAF outsourcing or the existence of a management training ground

for internal auditors. The effects of a full outsourcing of certain internal audit services in the light of

SOX Section 201 is subject to the study by Abbott et al. (2007), who find that economic bonding is not

a critical issue for nonrecurring internal audit services provided by the external auditor. In a similar

manner, Prawitt, Sharp, and Wood (2012b) report contradicting evidence that essentially challenges

the statutory banning of IAF outsourcing as they proclaim a decrease in accounting risk for companies

with internal audit services outsourced to their respective auditor. Moreover, the authors find this

effect to be stronger for companies that outsource to their incumbent Big N auditor as opposed to their

counterparts that either outsource to another Big N (or non-Big N) firm or that completely refrain

from outsourcing. Questioning objectivity of in-house IAFs due to their potential inclination to adopt

a judgemental bias favoring their employer, Ahlawat and Lowe (2004) find weak evidence that implies

slight objectivity vantages for outsourced IAFs. The SOX provision on outsourcing of internal audit

functions and services therefore radiates a profound impact on internal audit research, which is being

unveiled by the array and number of co-cited articles.

A third major component of documents within the cluster focuses on the governance related role

of internal auditing as a deterrent to earnings management, weaknesses in the internal control over

financial reporting structure, and fraud. In this context Prawitt, Smith, and Wood (2009a) find that

IAFs with high levels of competence, objectivity and work performance can be associated with less

earnings management (less likely to narrowly miss earnings forecasts and to exhibit lower levels of

negative abnormal accruals) in their respective companies. Pizzini, Lin, Vargus, and Bardhan (2011) on

the other hand find that certain characteristics and activities of IAFs, such as the level of education,

implementation of quality assurance techniques as well as the extent of financial activity audits and follow

up procedures, are negatively related to reported SOX Section 404 material weaknesses. Considering

fraud, Coram, Ferguson, and Moroney (2008) observe a positive effect of (in-house) IAFs on the detection

of asset misappropriation, whereas two other studies (Norman, Rose, and Rose, 2010; Asare, Davidson,

and Gramling, 2008) argue that the effectiveness of general fraud detection is further determined by

IAF reporting lines and the IAF’s perspective contingent on its designated role within the firm (self-

assessment versus due diligence). As referenced earlier, the highly co-cited literature synthesis on internal

auditing within the governance framework by Gramling et al. (2004) further emphasizes our notion that

strong evidence for an established role of internal auditing within the corporate governance framework

is given within cluster #3.

In addition to the three central themes, the cluster further contains a small range of other internal

21
audit related issues such as its importance for risk management (Sarens and De Beelde, 2006a) or the

association between existing reporting lines and IAF activities in a serving two masters setting (Abbott

et al., 2010).

As the scientific core of the network, several developments become discernible when considering the

arrangement of documents and their respective content. First, with respect to the relative impact the

sources have in the cluster, we find that the contribution of the IAF to external audits along with its

implications for the associated fee and quality of the same is evidently the most frequent research topic

when it comes to publications in the top accounting journals. Even structural questions pertaining to,

for example, the outsourcing of the IAF seem to be consequentially directed towards critical external

auditing issues, such as external auditor independence (Abbott et al., 2007) and reliance (Glover et

al., 2008). The closely interlinked concept of IAF objectivity and competency, as constituted by the

Statement on Auditing Standards (SAS) No. 65, has in this context emerged as a tangible and regulated

quality evaluation mechanism (AICPA, 1990). Consequently, it seems that internal auditing research

contribution and acknowledgment, as perceived by the research community, is closely intertwined with

the question of how it relates to external auditing.

Second, as illustrated by two of the most highly co-cited cluster studies that focus on the association

between internal auditing and financial statement quality (Pizzini et al., 2011; Prawitt et al., 2009a), we

find that the aforementioned external auditor related evaluation concept (competence and objectivity)

is transcending into other areas of internal audit research to comprehensively account for internal audit

characteristics as well as to serve as a means of ascertaining the impact of the function on a macro

level in the governance context (see also Abbott, Daugherty, Parker, and Peters, 2016). The broad

range of introduced quality measures, as exemplified in Table 4, is however far from uniform across most

studies, making internal audit quality in its entirety an erratic and rather intangible construct; thus

prompting the question of how internal audit quality can both be accurately and consistently modeled and

whether specific existing measures outweigh others or if substituting factors (e.g., stakeholder opinions

or expended IAF costs) should be prioritized.

Third, we observe a striking lack of micro level research addressing topics surrounding internal audit

processes and prominent issues within the profession. Examples for those are whether internal audit is

being effective (Soh and Martinov-Bennie, 2011; Arena and Azzone, 2009) depending on various organi-

zational and environmental influences (e.g., Alzeban, 2015) or the perception of important stakeholders

(Sarens and De Beelde, 2006b), whether the function is sufficiently resourced and whether the commonly

used surrogates for internal audit competence and objectivity adequately measure IAF quality. Build-

ing on the latter argument, Gramling and Myers (1997), in their survey study on professional internal

audit certifications including 163 internal audit directors, chief financial officiers and board members,

find that while respondends in general percieve certifications to be representative of a higher level of

22
 Table 4: Examples of internal audit quality measures

Measures of internal audit quality

Felix et al., 2001 External auditor assessment of overall internal audit quality

Prawitt et al., 2009 Average number of years of internal auditing experience of the internal auditors in the IAF
Percentage of internal auditors in the IAF who have the CIA or CPA certification
Average number of hours of training the internal auditors completed during the year
Average, industry adjusted investment of the entity into the IAF divided by average total assets
Reporting line of the head of the IAF to the audit committee or to management
Percentage of internal audit time spent performing financial auditing

Lin et al., 2011 Average number of years of auditing experience (internal and external) of the audit staff
Percentage of professional staff members with one or more audit certifications
Annual hours of training per internal auditor
Average number of years of undergraduate and graduate education of the audit staff
Total annual operating costs of the IAF divided by firm assets
The amount of control-related information the CAE reviews with the audit committee
Whether the CAE is an officer of the firm

Ege, 2015 Average number of years of internal auditing experience of the internal auditors in the IAF
Percentage of internal auditors in the IAF who have the CIA, CPA or CFE (Certified Fraud Examiner) certification
Average number of hours of training the internal auditors completed during the year
Average, industry adjusted investment of the entity into the IAF divided by average total assets
Functional IAF reporting line to the audit committee
The IAF not being used as a management training ground

Abbott et al., 2016 Average investment of the entity into the IAF per hour
Relative level of audit committee influence exerted over the IAF compared to management
The IAF not being used as a management training ground
Level of IAF outsourcing

competence, other factors, such as prior work performance, self-reportedly trump this quality surrogate

when it comes to organizational IAF credibility. Further, Gramling and Vandervelde (2006), by studying

quality assessments on outsourced versus in-house IAFs in an experimental setting with 21 internal and

23 external auditors, observe that external auditors tend to assess in-house IAFs to be less objective than

outsourced functions thereby contradicting internal auditors’ opinions who gravitated towards a converse

judgment. While these tendencies are explained through group affiliation theory, obtained results em-

phasize the notion that commonly deployed IAF quality measures (e.g., as mentioned in Statement on

Auditing Standards (SAS) No. 65 ) might be one-sided and therefore limited in their ability to capture

internal audit quality, therefore requiring further elaboration. The recent introduction of rotational IAF

career programs (management training ground concept) as a proxy for impaired auditor objectivity adds

to this controversy, omitting the fact that such IAFs are characterized by a higher level of competence

(Christ, Masli, Sharp, and Wood, 2015), ability (Carcello, Eulerich, Masli, and Wood, 2018) and appeal

23
for business professionals (Bartlett, Kremin, Saunders, and Wood, 2016).

Additionally, in light of the IIA’s recent response to the SEC proposing an inclusion of the audit

committee’s opinion on the adequacy of the internal audit department in the Form 10-K report (Cham-

bers, 2009), it appears reasonable to consider whether these internal stakeholder opinions constitute a

substantial criteria when evaluating IAF quality.

With regard to structural issues, we only find a narrow strand of co-cited literature related to dual

reporting line implications for the IAF in a serving two masters setting, whereas urgent matters related

to its positioning (e.g., within the three lines of defense model) and accountability (Chambers and Odar,

2015) have yet to be perceived as relevant topics within the scientific community represented by the

respective journals.

• Cluster #4: Auditing Professionalization

Being barely recognizable in terms of total link strength or co-citation frequency, cluster #4 is divided

into different subcategories that approach the process of auditing professionalization from various angles.

For example, Power (2004) critically reflects upon the intesifying emphasis on internal controls and

risk management as manifestations of increased regulatory interventions that consequentially erode the

professional status of auditors. Pentland (1993), on the other hand, observes practicing auditors in

a sophisticated field study approach and concludes that documented audit rituals serve as a central

instrument for auditors to accomplish consensus on client issues; thus contributing significantly to their

decision making process and professionalization. Being the central document within this cluster, Abbott

(1988) goes into detail on the theoretical meanings of expert knowledge and constitution of power related

to professional groups in his rather historical view on the evolution of professionalization in a more general

sense. However, due to its remote positioning combined with limited co-citation linkages to the rest of

the network we abstain from a detailed analysis of cluster #4.

• Cluster #5: Audit Committee Effectiveness

Cluster #5 is permeated by items that focus on a variety of characteristics that constitute audit com-

mittee effectiveness. A small strand of items does however dedicate itself to topics revolving around

corporate governance and especially auditing. Interviewing 36 audit practitioners of three different staff

levels, Cohen, Krishnamoorthy, and Wright (2002), for example, provide implications on how auditors

assess and take into account their clients governance characteristics. While influence of senior man-

agement (tone at the top) is identified as a main driver for client governance, internal auditors on the

other hand are declared as less determinative based on their focus on ”micro level rather than on overall

corporate operations or controls”. Contrary to this notion, Cohen, Krishnamoorthy, and Wright (2004),

in their extensive literature review, imply governance enhancing synergy potentials for cooperating au-

dit committees and internal auditors within a stakeholder oriented framework (corporate governance

24
”mosaic”) that captures the interrelationships and financial reporting related influence of the audit com-

mittee, the board of directors as well as internal and external auditors. This shift in perception is further

substantiated by Cohen et al. (2010), who in their interview study with thirty big four audit managers

and partners observe an increased significance of internal auditing to external auditors while further

remarking that ”[...]the audit committee in the post-SOX era has exhibited a focus that is generally

consistent with agency theory, and this focus may be contributing to the audit committee viewing the

internal audit function as a key element of the corporate governance mosaic of the firm” (Cohen et al.,

2010, p.780).

Addressing the concept of audit committee effectiveness in a more palpable way, we find that about

14 of the remaining 24 documents of cluster #5 concentrate on characteristics that facilitate the oversight

role of the audit committee as a governance mechanism. The four major dimensions of interest intro-

duced by the included DeZoort, Hermanson, Archambeault, and Reed (2002) document divide these

characteristics into audit committee composition (understood as level of expertise, independence, in-

tegrity and objectivity), authority (documented responsibilities, influence), resources (adequate number

of members, access to management, external auditors, and internal auditors) and finally the degree of

diligence (incentive, motivation and perseverance inferred from numbers of meetings and voluntary dis-

closures). While most of the archival studies of the cluster correspond to one of these four categories,

none of them hold explicit information about the role or influence of internal auditing when it comes to

audit committee effectiveness and quality of financial reporting or vice versa.12

However, painting a completely different picture, most of the qualitative studies indicate recognizable

impact of the IAF when it comes to audit committee effectiveness in practice. Gendron and Bédard

(2006) and Gendron, Bédard, and Gosselin (2004), through a series of interviews with members of the

board and internal audit department, reveal the pivotal role internal auditors play in providing insights on

organizational problems and potentials for improvement that are usually well received by members of the

audit committee. Categorization schemes used in internal audit reports thereby serve as a fundamental

disciplining mechanism for holding management accountable and, combined with follow-up procedures,

constitute a sense of corporate accountability for audit committee members.

The close interdependency of the two actors within the governance framework becomes evident in

several other documents of the cluster as well (Turley and Zaman, 2007; Kalbers and Fogarty, 1993). In

their synthesis of empirical audit committee literature, DeZoort et al. (2002) refer to the IAF as being

closely associated with audit committee independence. Reciting a rich set of referential studies, the
12 One reason for the omission of internal audit related content is probably the lack of disclosed data on internal audit
functions. For example, Dhaliwal, Naiker, and Navissi (2010) examine the relationship between accounting expertise
(measured as levels of independence, share ownership and multiple of directorships) and a mix of accounting and non-
accounting expertise on accruals quality. Considering the control variables, the authors state: ”internal auditors can also
play a role in preserving financial reporting quality by monitoring organizational risks and assessing internal controls.
[...] We do not control for internal auditing because of the significant time and cost constraints involved in identifying
the presence of an internal auditing function for our large sample.” Most of the other archival studies of the cluster follow
a similar rationale (e.g., McDaniel, Martin, and Maines, 2002; Srinivasan, 2005; Krishnan and Visvanathan, 2008).

25
authors conclude that IAF support and interaction with audit committees is of ”unique importance” in

yielding enhanced audit committee effectiveness.

Furthermore, drawing on a broad body of theoretical concepts on corporate governance,13 Beasley

et al. (2009) seek to explain audit committee processes based on agency and institutional theory in an

attempt to demystify the practiced role (ritualistic and ceremonial in nature and conduct versus monitor-

ing and oversight-oriented; therefore vigilant and independent in nature) of the governance body. Their

findings based on interviews suggest that audit committee oversight is, with some exceptions, exerted

substantively in the areas of diligence before and after acceptance; selection of committee nominations;

committee meetings; oversight over financial reporting and the external/internal auditor as well as other

audit committee activities. In terms of IAF interaction and oversight, audit committees are described

as being highly attentive towards internal auditors’ reports and findings and clearly rely on the function

when it comes to the evaluation of the effectiveness of internal control over financial reporting (together

with the external auditor). However, due to instances of unclear reporting lines to more than one in-

ternal institution (e.g., CFO, CEO and audit committee), the authors express concerns about potential

conflicts of IAF loyalty that require further clarification.

Overall, cluster #5 is revealing in terms of internal audit influence when it comes to audit committee

effectiveness and exhibits a potentially fruitful area of future internal auditing research.

While the discussion about possible determinants of audit committee effectiveness is evidently on a

major upswing, its imprints on internal auditing are clearly showing within the citation network. Yet, it

is noteworthy how little impact existing survey-based studies pertaining to formal or informal interaction

processes between the audit committee and internal auditing (Zaman and Sarens, 2013; Goodwin, 2003;

Alzeban and Sawan, 2015; Zain, Subramaniam, and Stewart, 2006) have within the community as none

of them appear in the cluster. Given their focus on data from outside of North America, it seems

reasonable to conclude that choice of method and differing (international) statutes have a detrimental

effect when it comes to perceived importance of the respective study. Often inherently incapable to

capture considerable informal drivers of audit committee effectiveness, surveys therefore seem to be

limited in their ability to address profound issues of audit committee effectiveness; especially when

considering informal internal audit interaction (e.g., Zaman and Sarens, 2013). However, we note that

the aforementioned is a corresponding trend for non-survey studies as well (e.g., Sarens, De Beelde, and

Everaert, 2009).

With the rare exception of the Turley and Zaman (2007) and Kalbers and Fogarty (1993) articles, all of

the remaining cluster studies focus on a North American context and apply either archival, experimental
13 ”[...]
agency theory emphasizes directors as independent, vigilant monitors of management; institutional theory empha-
sizes the symbolic/ceremonial role of governance structures where legitimacy is paramount and formal processes are only
loosely coupled with true monitoring; resource dependence theory focuses on the board’s efforts to assist management
with strategy and resources; stewardship theory presumes that managers are honest; and managerial hegemony asserts
that the audit committee will be weak and under management’s control.” (Beasley et al., 2009)

26
or qualitative research methods.14 The sole survey based study in the sample addresses multiple parties

(namely the IAF, the external auditor, and the CFO) instead of only one governance faction and can thus

be considered a peculiarity (see Kalbers and Fogarty, 1993). Overall, the inference can be drawn that

although multifaceted, highly contemporary and practice relevant topics are being touched upon, these

studies gain little or no recognition by researchers in the highest ranked accounting journals. Suitable

examples are several efforts to analyze the influence of audit committee characteristics on internal audit

investment decisions (Barua, Rama, and Sharma, 2010) and IAF effectiveness (Alzeban and Sawan, 2015)

or the comfort driven reasons behind audit committees’ decision to closely interact with IAFs (Sarens et

al., 2009).

We therefore encourage an increased application of qualitative research methods in such instances to

shed light on the relationship between the audit committee and the IAF and to attract further attention

of practitioners and professional bodies.

Table 5: Most frequently co-cited documents

No. Label x y Cluster Weight Weight Avg. link strength

(Links) (Total link strength)

1 Felix/Gramling/Maletta (2001) -0.195 0.1658 3 60 221 3.68

2 Dechow/Sloan/Sweeney (1996) -0.1531 0.3859 1 49 182 3.71
3 Sarbanes-Oxley Act (2002) 0.0249 0.3015 8 47 168 3.57
4 Klein (2002) -0.1215 0.4933 1 45 162 3.60
5 Prawitt/Smith/Wood (2009) -0.2728 0.2526 3 41 155 3.78
6 Frankel/Johnson/Nelson (2002) 0.0933 0.292 8 40 143 3.58
7 Cohen/Krishnamoorthy/Wright (2002) -0.133 0.5826 5 38 134 3.53
8 Beasley et al. (2000) -0.1679 0.4569 1 38 132 3.47
9 Lin et al. (2011) -0.2939 0.2298 3 36 127 3.53
10 Public Company Oversight Board (2007) -0.3476 0.2371 7 34 127 3.74
11 Krishnan (2005) -0.1739 0.2956 7 33 121 3.67
12 Gramling et al. (2004) -0.4968 0.0809 3 33 112 3.39
13 Bédard/Chtourou/Courteau (2004) -0.1323 0.4771 1 31 106 3.42
14 American Institute of CPAs (1990) -0.5722 0.0627 6 26 104 4.00
15 Doyle/Ge/McVay (2007) -0.3267 0.3346 7 27 104 3.85
16 Simunic (1984) 0.3176 0.0767 2 29 104 3.59
17 Beasley et al. (2009) -0.1804 0.5763 5 28 97 3.46
18 Gompers/Ishii/Metrick (2003) -0.2864 0.2014 3 26 96 3.69
19 Abbott et al. (2007) -0.1673 0.1447 3 27 95 3.52
20 Ashbaugh-Skaife/Collins/Kinney (2007) -0.305 0.3399 7 24 89 3.71

14 Includedstudies with an audit committee effectiveness focus not cited in the cluster description are Cohen, Krishnamoor-
thy, and Wright (2008) and DeZoort (1998).

27
 • Cluster #6: Reliance on Internal Auditing

Containing a broad range of documents that deal with determining factors of the external auditor’s

decision to rely on internal audit work, we interpret cluster #6 as a portrayal of a highly developed

research area.15 The arrangement of items as shown in Figure 5 reveals the chronicle of studies on this

audit related topic surrounding regulatory changes in 1990.

Starting in 1974, the early experimental Ashton (1974) study examines whether auditors’ internal

control judgments tend to be consistent when evaluating the strength of a client’s internal control sub-

system. The study related case is an early example for internal audit evaluation by the auditor as audit

related IAF presence is one of the six indicators describing the payroll internal control system to the

subjects. Other early works within the cluster address the behavioral process of auditors’ decision mak-

ing and explore reasons for judgmental inconsistencies in an auditing context (Libby, 1981; Joyce, 1976).

How auditors’ judgment on audit program planning is affected by clients’ internal auditor employment

of sophisticated audit programs (including review of changes) and level of independence, is subject to

the study by Abdel-Khalik, Snowball, and Wragge (1983). Referring to the outcome of the experiment,

the authors note that auditors place relatively higher reliance on internal auditors who report directly

to the board as opposed to the company’s controller. Perceived as level of IAF independence, auditors

consequently adjust their audit program by allocating less man-hours to work that is to be done by

internal auditors. In the aftermath to this particular study, we find that research on auditor judgment in

a scenario of internal control related program planning is starting to focus not only on the sheer presence

of internal auditors, but rather on qualitative IAF characteristics that are being strongly associated with

auditors’ reliance decisions. Guidance on the latter is in almost all cases provided by the Statement

on Auditing Standards (SAS) No. 9 (AICPA, 1975) and its successor Statement on Auditing Standards

(SAS) No. 65 (AICPA, 1990).16

Proceeding from various studies that focus on IAF competency, objectivity and performance as

detached evaluation criteria (e.g., Gibbs and Schroeder, 1979; Clark, Gibbs, and Schroeder, 1981), Brown

(1983) offers one of the first approaches that emphasizes intermingling effects between the three reliance

determinants. In an experiment with 101 auditors from four ”Big Eight” firms he finds that out of

six different IAF characteristics related to the three evaluation criteria (competency, objectivity and

performance), IAF independence and, most importantly, satisfactory work performances during earlier

engagements outweigh the remaining factors when auditors assess internal audit reliability.17 Subsequent
15 During the further course of this work we refer to external auditors as simply auditors.
16 Guidanceis provided for example by paragraph four of SAS No. 9 as it states: ”If the independent auditor decides that
the work performed by internal auditors may have a bearing on his own procedures, he should consider the competence
and objectivity of internal auditors and evaluate their work.”
17 The six cues submitted to participating auditors were presence of a thorough IAF training program, IAF reporting line
to an independence ensuring level and access to board, satisfactory IAF work performance during earlier assignments,
emphasis on professional IAF certificates, satisfactory IAF performance of follow-up procedures and adequate IAF quality
assurance.

28
studies within the cluster are, to a great extent, eager to identify a perceived order of importance between

the factors to allow for a ranking among the three reliance determinants. For example, Schneider (1984)

and Schneider (1985) in a similar methodological approach reveal the distinctiveness of one particular

factor. In an attempt to model how auditors factor in, value, and weight competency, objectivity, and

performance when evaluating internal audit quality, the author applies numerical conjoint measurement

in a three stage experiment setting to find that work performance (quantity and quality of internal

audit documentation and scope of work) tends to be the most important characteristic among the highly

consensual auditors. This notion is further emphasized by Margheim (1986), who uses a combined

measure of competency and work performance and finds that while auditors seem to be unaffected by

IAF objectivity and its interaction with the aforementioned combination, high levels of competence-work

performance most likely lead to a reduction of planned external audit hours associated with internal audit

reliance. Schneider (1985) additionally proves that while overall reliance on internal auditing is high,

auditors’ judgments of IAF quality attributes are also consistently associated with the level of reliance

placed on the function. All three articles are also highly co-cited and closely positioned within the cluster

(see Figure 5).

We further identify several documents whose publication closely followed the issuance of SAS No.

65 and notice that most of them expand upon the one dimensional focus on the three earlier mentioned

evaluation criteria. Maletta and Kida (1993) for example consider the assessment of IAF characteristics

by the external auditor as conditional on the client’s level of inherent risk. Studying the effect the latter

has on the auditor’s evaluation of the three IAF quality characteristics when considering the involvement

of internal auditors as their assistants, the authors find that while all three factors are mutually important,

in the presence of high levels of inherent risk and strong controls, only competency is perceived as crucial

when inherent risk is low (and strong controls are present). Following the same line of argumentation,

Maletta (1993) hypothesizes that in a scenario of high inherent client risk and varying levels of mitigating

controls, complexity of auditor judgment related to audit program planning and hence evaluation of IAF

quality criteria increases. For this instance they find that auditors apply a rather complex configural

decision process that does not simply emphasize the importance of IAF quality criteria. Based on their

experiment with more than sixty audit managers from one ”Big Six” firm they also conclude that IAF

competence (level of staff experience and quality of supervision) is of comparatively higher importance

than the other two characteristics across all levels of a client’s inherent risk. Additional evidence for the

relative importance of competency, followed by objectivity and work performance, is provided by Messier

and Schneider (1988), albeit their acknowledgement of low levels of consensus among participants.

However, as noted by Krishnamoorthy (2002), none of the aforementioned studies yield results in a

satisfactorily consentaneous manner. By constructing a theoretical model based on analytical methods

to capture existing interrelationships between the three internal audit attributes that drive the auditor’s

29
reliance decision, the author concludes that the evaluation process itself ”[...] may be more complex than

has been characterized in prior research, and an attempt to discern a generalizable rank order of the

factors may be futile” (Krishnamoorthy, 2002, p. 96). Overall, we conclude that cluster #6 captures

the scientific evolution of research on the external auditor’s IAF assessment criteria during the time

between the issuance of SAS No. 9 and shortly after the endorsement of its superseding successor, SAS

No. 65. At the same time, it becomes evident that implications of the Standards play an important

role in internal audit research as the latest version is one of the most frequently co-cited item of the

cluster, having strong links to various other clusters (#3, 7 and 8). Figure 5 visualizes the segmentation

of strongly co-cited studies that becomes apparent when considering their respective findings.

With the cluster essentially tracing the historical evolution of studies on the (direct or indirect)

reliance decision of the external auditor, we observe that this branch of research has not ceased to focus

on yielding revelatory insights in terms of surrogates for IAF competency and objectivity. For the latter,

IAF outsourcing and the rotation of internal auditors into leading positions (after having spent a limited

time period in the IAF) are associated with having an impairing effect on external auditor reliance

(Messier et al., 2011; Glover et al., 2008).

Considering the strong focus on findings for the external auditors’ profession, we encourage further

research to take on a broadened perspective and address immediate consequences for internal auditors

that result from a direct or indirect assistance in financial statement audits of the external auditor. While

the IAF often devotes time and effort to provide the output or assistance used by the external auditor,

it is not very clear how this affects the work results and perceived effectiveness of the former in the eyes

of the most important stakeholders and whether potential cost reductions in audit fees compensate for

the IAF’s time invested into the external audit. While measuring IAF effectiveness remains a highly

vague and often times controversial issue, we suggest that experimental and field work studies constitute

a suitable approach to gather insights on consequences of internal and external auditor interaction as

they are considered useful in analyzing such governance related relationships (Carcello et al., 2011).

• Cluster #7: Internal Control over Financial Reporting

Located immediately adjacent to the core cluster (#3) of the network, cluster #7 goes into great depth

on the companies’ internal control environment in the light of (recent) regulatory requirements by SOX

Sections 302 and 404. Being co-cited together with 12 other network items, the Ashbaugh-Skaife, Collins,

and Kinney (2007) study is among the most influential documents in this cluster as it touches upon

the impact of stricter SOX compliance requirements. The authors consider the period prior to the

introduction of SOX Section 404 disclosure requirements (material weaknesses related to companies’

internal controls) and unveil company characteristics and management incentives that are associated with

disclosures of internal control deficiencies (divided into material weaknesses, significant deficiencies and

less severe control deficiencies). While comparatively lenient rulings allowed management to internally

30
 Figure 5: Cluster #06

resolve any discoveries of such control deficiencies related to the required evaluation of internal controls by

reporting them to the auditor and audit committee under Section 302; Section 404 requires management

not only to disclose reports upon the assessment of design adequacy and effectiveness of internal controls,

but to additionally get an auditors’ opinion on their final assessment and publicly disclose any material

weaknesses. In this context, the results of the study indicate that under Section 302, especially smaller,

more complex organizations that exhibit more frequent acquisition and restructuring activities as well

as reported losses are more likely to disclose internal control deficiencies. Supplementary factors are

relatively greater procedure application risk compared to organizations with higher sales growth and

inventory. As for possible disclosure incentives, the authors emphasize the significance of ”Big Four” or

comparable audit supplier engagements, the existence of blockholders or occurrence of former accounting

related sanctions or restatements enforced by the SEC. The study remains silent, however, as to whether

internal audit presence has the potential to be a conducive catalyst with regards to disclosures in this

scenario.

Expanding further on the occurence of deficiencies in internal control environments, the source Doyle,

Ge, and McVay (2007) adds clarity on the actual explanatory nature of publicly reported material

weaknesses.18 The authors find a significant relationship between those companies that exhibit internal

control weaknesses and lower quality levels of four different measures of company accruals that proxy for
18 Asdefined in Auditing Standard No. 2 by the PCAOB, the term material weakness depicts a significant deficiency, or
combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or detected (PCOAB, 2004).

31
financial reporting quality. While such weaknesses can be further subdivided into less harmful account-

speficic and rather fundamental company-level control problems, the authors’ empirical results show

that the latter are most accurate in exposing firms of poor financial reporting quality. It is worth

noting that according to Auditing Standard No. 2, IAF activities fall under the category of company-

level controls. The authors finally argue that imprecise accrual estimation and deliberate management of

accruals, that consequently map into cashflows, are less likely to be detected or prevented by dysfunctional

internal controls. Follow up studies within the cluster pick up on this notion and add that, for example,

remediation of control deficiencies in the form of a subsequent clean control audit opinion result in

a quality increase of company accruals; thus improving financial reporting quality (Ashbaugh-Skaife,

Collins, Kinney, and LaFond, 2008). Also, Goh (2009) finds that a strong ”tone at the top”, as exerted

by well-resourced audit committees and independent boards, is very likely related to timely remediation

of internal control weaknesses within the first section 404 report. Further reflecting upon the role of the

audit committee, Krishnan (2005) provides affirming evidence as his results imply that audit committees’

independence and extent of financial expertise (both of which proxy for effectiveness) are negatively

associated with the disclosure of internal control problems, while internal audit presence is not.

Similarly to the prior cluster, we observe that regulation again plays a distinctive role as Auditing

Standard No. 5 (PCOAB, 2007) (being the successor of the earlier mentioned AS No. 2 ) with its

implications for an audit of internal control over financial reporting of public companies has co-citation

links to 17 other documents and is listed among the ten most frequently co-cited documents of the

network (see Table 5). Upon closer examination the Standard comprises concise explanations on the role

internal auditors play in internal control audits as they constitute an integral component of the company’s

internal control environment; that is, conditions are stated under which work of internal auditors can be

used by the external auditor with particular emphasis on IAF effectiveness. We assume that this is why

co-citations between AS No. 5 and nine different documents of cluster #3 exist. We also suggest that

cluster #7 reflects one of the main reasons behind the recent increase in relevance of internal auditing

in the context of stricter internal control over financial reporting policies. Corroborating this line of

argumentation, it is telling that all of the 23 co-cited articles in this cluster were published between 2005

and 2011. As for one of the reasons, Doyle et al. (2007) refer to the lack of sufficient internal control

data prior to SOX disclosure requirements.

With regard to the IAF, the cluster brings to light the intricate and oftentimes ambiguous role

ascribed to internal auditing in the burgeoning internal control over financial reporting discussion. While

several of the cited articles consider internal auditing as a core element of companies’ internal controls

(e.g., Ashbaugh-Skaife et al., 2008; Hammersley, Myers, and Shakespeare, 2008), others emphasize the

oversight role of the former and therefore distinguish between internal controls and internal auditing as an

autonomuous constituent of the companies’ governance framework. None of the cluster articles, however,

32
go beyond measuring the mere presence of the function despite being a distinct governance related

determinant of a firm’s internal control over financial reporting quality. The highly interconnected and

centrally located Krishnan (2005) study on the relationship between audit committee quality and reported

internal control problems is exemplary in that sense, as it considers internal auditing simply as present

or absent while incorporating external auditor influence, referred to as a relatively direct monitoring

counterpart, in a far more versatile and comprehensive way (e.g., auditor tenure, type and industry

share). Moreover, substantiated by a lack of sufficient disclosure data, remarks by the author suggest an

incapability to adequately proxy for internal audit presence, contrasting starkly the multifaceted quality

measures for other included governance counterparts (e.g., management, the audit committee, and the

external auditor) (Krishnan, 2005, p. 657). A large proportion of articles, on the other hand, completely

refrains from elaborating on the meaning of internal auditing in this context (e.g., Doyle et al., 2007;

Feng, Li, and McVay, 2009; Hoitash, Hoitash, and Bédard, 2009).

As mentioned earlier, an observable transition of this topic into core cluster #3 is closely intertwined

with the recognition of the importance of internal audit quality and its pervasive bearing on the outcome

of internal control over financial reporting quality assessments (e.g., Gramling and Vandervelde, 2006).

Further expanding on the emerging notion that high quality IAFs and their activities positively affect

internal controls over financial reporting by (1) contributing to audit committees’ internal control over-

sight effectiveness and (2) aiding management in assessing and improving the internal control processes,

we conjecture that certain attributes or particular activities of the function are more or less likely to

have a beneficial impact on internal control improvements and question how this relation is altered by

interactions with the audit committee and external auditors.

• Cluster #8: Regulatory Framework

As indicated by the preceding descriptions and citation patterns, we notice both on a network level and

from a content related viewpoint that the Sarbanes-Oxley Act of 2002 (SOX, 2002) exerts the most

profound influence on internal auditing research. No other item yields co-citation links to every other

network cluster and no other document seems to trigger such drastic reactions as the federal law does.

We therefore propose that certain regulatory provisions associated with SOX are of unique importance

for the emergence of some of the research clusters we find within the network. We propose the following

Sections to be of major relevance for the following network areas:

• Section 201: Services outside the scope of practice of auditors (Cluster 2, 3, 4)

• Section 301: Public company audit committees (Cluster 1 and 5)

• Section 302: Corporate responsibility for financial reports (Cluster 7)

• Section 404: Management assessment of internal controls (Cluster 1, 3, 4, 6, and 7)

33
 • Section 407: Disclosure of audit committee financial expert (Cluster 1 and 5)

Located closely, two Final Rules issued by the SEC implement SOX requirements and refer to the

IAF in different ways. The Final Rule: Management’s Report on Internal Control Over Financial

Reporting and Certification of Disclosure in Exchange Act Periodic Reports (SEC, 2003a) serves as

a direct adoption of SOX Section 404 provisions for companies subject to the reporting requirements

of the Securities Exchange Act of 1934; making reference to internal auditors as potentially involved

parties in the preparation of the management report on internal control over financial reporting. In the

context of auditor independence and non-audit services, the Final Rule: Strengthening the Commission’s

requirements regarding auditor independence (SEC, 2003b) constitutes a direct translation of SOX Section

201 provisions. It briefly outlines the fundamental issue of outsourced internal audit services provided

by the incumbent auditor and gives reasons for the necessity of banning such services.19

Adding scientific evidence, Frankel, Johnson, and Nelson (2002), who in their study concentrate on

the effect of purchased non-audit fees on earnings management, find that the former can be associated

with companies having lower financial reporting quality and are more likely to report small earnings

surprises.

Other than that, we find that two particular studies mark the transition of cluster #8 towards

adjacent clusters. Carcello, Hermanson, and Raghunandan (2005b), as a direct connection to cluster

#3, discuss the heightened attention for internal auditing against the legal backdrop of recent NYSE

and SOX requirements. Suggesting that large and financially stable companies that are being exposed to

high risks are more likely to invest into internal auditing, the authors find that factors such as company

and inventory size, leverage, operating cashflow and audit committee budget oversight are significantly

related to companies’ IAF investments. Partly corroborating the results of Beasley et al. (2000), they

add that companies operating in a financial, service or utility industry are predicted to devote between

40 and 50 percent more resources to IAF budgets than companies from other industries.

The Raghunandan et al. (2001) study, being positioned close to the center of the network, connects

cluster #8 with clusters #3, 1, and 5 as it is the most explicit study addressing regulatory influence on the

interrelationship between the audit committee and internal auditors. Drawing upon the earlier mentioned

recommendations of the Report and Recommendations of the Blue Ribbon Committee on Improving the

Effectiveness of Corporate Audit Committees (BRC, 1999), evidence is provided that BRC compliant and

therefore effective audit committees (consisting solely of independent members and at least one financial

expert) exercise relatively higher IAF interaction and oversight than their comparatively less effective

counterparts.

Based on the composition of this cluster, we deduce that regulatory developments and their practical
19 ”Sincethe external auditor typically will rely, at least to some extent, on the existence of an internal audit function and
consider its impact on the internal control system when conducting the audit of the financial statements, the accountant
may be placed in the position of auditing his or her firm as part of the internal control system” (SEC, 2003b).

34
as well as scientific, yet oftentimes indirect implications for internal auditors are increasing. Albeit being

indirectly conducive to the profession’s progress, some of the SOX reforms and their initiated changes,

most notably the prohibition of IAF outsourcing, have been subject to controversial discussion, includ-

ing highly invalidating evidence (e.g., Prawitt et al., 2012a). It is surprising, however, that potential

avenues of research on policies for firms (or amendments of such) and their respective IAFs seem to

remain unexplored, as exhibited by the cognitive discourse of the scientific internal auditing community.

While the firm’s inner governance and control structure is eminently contingent upon outwardly unre-

congizable governance mechanisms, such as internal auditing, the recent consideration of an externally

directed Internal Audit Report (IAR) and its positive effect on investor confidence pertaining to oversight

effectiveness and financial reporting reliability (Holt and DeZoort, 2009) may provide such a potential

course of future IAF research (e.g., necessary components of such a report and its possible consequences

for the profession). Drawing upon the notion that sheer IAF presence alone is not directly related to

internal control quality (Krishnan, 2005), whereas high quality IAFs are found to be positively associated

with both internal control and financial reporting quality (Pizzini et al., 2011; Prawitt et al., 2009a),

we posit that disclosing standardized IAF quality information not only provides relevant information for

external stakeholders but might even be in the interest of regulators and the profession itself. Further

substantiating this line of reasoning, recent comments on the SEC’s proxy disclosure and solicitation

enhancements (suggesting the 10-K disclosure of four different internal audit characteristics) by the IIA

affirm the potential relevance of such publicly available IAF information (Chambers, 2009). However,

this again merits discussion about what universal determinants define IAF quality (e.g., from a scientific

versus a practical viewpoint) that at the same time allow for objectifiable intercompany comparisons.

The overemphasis on seemingly progressive SOX requirements and NYSE listing provisions, on the

other hand, reflects upon a lack of mindfulness with regards to negative trends such as the recent

withdrawal of the proposed new rule by the NASDAQ, aiming to obligate listed firms to install and

maintain an IAF. The withdrawal unveiled the still highly skeptical perception prevalent among IAF

critics, who, as expressed through numerous comments, perceive internal auditing as a budget straining

burden rather than a value adding trusted advisor. We find that little has been done to shed light on

the current image of internal auditors inside and outside of their respective companies and encourage

further research on possible determinants of this presumably prejudicial image.

In an attempt to further validate or revise our findings, we gathered additional citation data from 42

articles published in the Auditing: A Journal of Practice and Theory (AJPT) journal between 1981 and

end of 2016. We were able to extract 1,388 sources that were cited 1,750 times within the articles. The

network consisting of 33 items that are co-cited at least three times is presented in Figure 6.

The structural arrangement of documents exhibits a clear resemblance of network clusters #3 and #6

35
 Figure 6: Co-citation network AJPT

based on the five accounting journals. It also strongly resonates with the contents described within these

clusters. Defining the dominant topic in this network, frequently co-cited sources, such as Schneider

(1985, 1984) or Messier and Schneider (1988), underline the importance of the external-internal auditor

reliance decision. The remaining clusters clearly reflect the content related composition of cluster #3

in our initial network; meaning that topics such as the outsourcing of the IAF (Glover et al., 2008;

Ahlawat and Lowe, 2004), its influence on the external audit fee or financial statement quality (Felix

et al., 2001; Prawitt, Smith, and Wood, 2009b), and corporate governance in general (e.g., Gramling et

al., 2004; Abbott et al., 2007) seem to define the core structure of research on the IAF in this journal.

Furthermore, we find that regulatory provisions, such as SOX or earlier mentioned Auditing Standards,

seem to be of strong importance within the AJPT network.

5. Directions for future research

Several potential areas of future research emerge in consideration of the network related contextual anal-

ysis.20 As a more direct result, examined co-citation patterns bring forth the overarching concept of

internal audit quality and reveal researchers’ ongoing endeavors to frame essential attributes of an effec-
20 A comprehensive list of research questions is provided in Appendix E.

36
tive IAF. The broad variety of quality factors seen in the network studies, however, indicates an existing

dissent among authors who lack consensus as to what most accurately constitutes IAF quality. Conse-

quently, it seems to be of importance to critically reflect upon whether the current quality evaluation

concept (as constituted by the literature and Statements of Auditing Standards (SAS)) of internal audit

activities and attributes is a capable measure of internal audit effectiveness and how existing criteria

should be expanded. We specifically question whether more indirect measures, such as organizational

support for the IAF (e.g., formal and informal CAE ties to the board and senior management); prior work

experience or education; fit between internal auditor’s attributes and the IAF activities; level of integra-

tion into a three lines of defense model; IAF compensation, diversity and structure; auditee perception

of the IAF; impact of a management training ground; general audit scope (e.g., extent of consulting

services, audits on ethical behavior); and IAF assertiveness regarding the implementation of findings,

should be consistently accounted for when contemplating internal audit quality. Also, we conjecture that

attitudinal and behavioral measures (e.g., work satisfaction, organizational commitment, intent to leave)

play a critical role in this context. Given the current debate about conflicting IAF reporting lines, further

attention should also be drawn towards whether singular reporting lines either to senior management or

the board promote IAF effectiveness.

With regard to quantifiable means that are suitable to gauge the latter, further exploration of sufficient

measuring approaches pertaining to internal audit quality outcomes (e.g., implementation of findings,

reduction of audit fees, audit duration, reporting timeliness, stakeholder satisfaction) and their ascribed

relevance by internal and external stakeholders (e.g., senior management, external auditor, CAE) is

required. In the same sense should internal audit quality be related to different measures of external

audit outcomes (e.g., timeliness of audit reports, going concern opinions).

As a majority of experimental network studies address the importance of the external auditor, we

also pose the question whether external quality assessments carried out by the aforementioned can be

a meaningful proxy for high quality IAFs, as these represent an independent assessment based on the

contemporary Statements on Auditing Standards (e.g., Felix et al., 2001). We also conjecture that

external auditors could more likely rely on work of IAFs whose quality has been independently assessed

by an external party. Directly related to this idea, we also question how former ties of the CAE or staff

internal auditors to an audit firm potentially affect such an evaluation by external auditors, noting that

such a common ground might establish a shared understanding of the audit profession. On the other

hand, differences in perception of IAF quality attributes among practicing internal and external auditors

might require further consideration in this scenario (e.g., Gramling and Vandervelde, 2006).

Given the enduring stream of publications that aim to fathom the relationship between the external

and internal assurance provider, a prevalent inclination to adopt the external auditors’ perspective is

noticeable while effects on internal auditors remain unclear. For example, when both parties interact,

37
little is known about how internal auditors benefit from potential knowledge spillovers when assisting

in external financial statement audits and how their judgment decision making is affected when being

supervised by the external auditor. As the CAE in this instance devotes resources to the external audit,

efficient ways to compensate effort or personnel assigned to the financial statement audit are yet to be

studied. Considering additional determining factors of the interaction, former ties to the audit firm

(of the incumbent external auditor) could proof helpful in establishing a common ground between the

internal and external auditors, potentially promoting mutual cooperation and consequentially the quality

of an audit.

Moreover, in an attempt to further clarify the relationship between internal auditing and internal

control quality, we encourage future research to contemplate the role of internal auditing in the case of

Section 404 material weakness disclosures and subsequent remediations as well as possible consequences

(e.g., restructuring, outsourcing or CAE dismissal) for the function. To be more specific, we are interested

in the influence internal auditors and their interaction with the external auditor and audit committee

exert in the remediation or ex ante rectification of internal control problems. On another note, the

introduction of EDP audit tools, such as continuous auditing, might affect internal auditors’ activities

related to financial statement audits and consequently the quality of reported earnings.

As it is pointed out that internal audit interaction with the audit committee is a key determinant

in promoting internal control related activities (Abbott et al., 2010), we question how relatively high

management influence on the IAF compared to audit committee oversight affects internal control quality

and how such activities are influenced by whether the IAF is in-house or outsourced or uses advanced

technology (e.g., continuous auditing or process mining). Moving further away from concentrating on

stakeholder relationships, we further hope that future studies shed light on the relationship between

specific internal control related activities and stable internal control processes, or whether providing

additional services (e.g., governance and risk management related consulting activities) could have an

impairing effect. It is also unclear how internal control related IAF effectiveness varies among different

industries and how high quality IAFs promote timely remediations of reported material weaknesses. In

cases of material misstatements, knowledge to date is scarce about consequences for and reactions of both

the IAF and the audit committee (i.e., whether audit committee directors seek to exculpate themselves

through internal audit work). Also, given the anecdotal (post SOX) change in relevance of internal

auditing (e.g., Cohen, Hayes, Krishnamoorthy, Monroe, and Wright, 2012, p. 79), it appears reasonable

to further explore in how far internal audit association with internal controls over financial reporting

quality has changed before and subsequent to major regulatory changes. Considering the importance

of environmental factors, it might also be worth considering to what extent internal control related

monitoring is affected in an international setting where internal auditors might face different challenges

such as language barriers or cultural differences and what can be done to overcome these challenges.

38
Aside from that, we also pose the question whether high quality IAFs can potentially substitute high

quality external audit services or how the two complement each other with regards to internal control

quality.

Further acknowledging the fact that the interplay between both the IAF and the audit committee

marks a pivotal theme within the co-citation network, we additionally address several issues that demand

a more thorough examination in this regard. Expanding on the earlier mentioned quality concept, it

should be of interest to further explore which IAF activities and characteristics are perceived as essential

in promoting audit committees’ self-perceived accountability (i.e., which internal audit activities are

perceived as particularly valuable by members of the audit committee in enhancing audit committee

effectiveness) and whether the concept of professional skepticism can be transferred to the internal audit

profession in explaining enhanced contribution to audit committee effectiveness. We also know little

about the degree to which highly insightful information and competence provided by the IAF is (un)able

to compensate for a lack of audit committee financial expertise or independence. On the contrary,

inspired by recent findings pertaining to the external auditor (Messier et al., 2011), we hope to find

more evidence on whether rotational career programs, such as the management training ground concept,

either negatively or positively affect internal auditors’ contribution to audit committee effectiveness.

In addition to that, we question which IAF structure proves advantageous, especially regarding audit

committee interaction and support, when the firm operates in an international environment (international

IAF hubs versus centralized headquarter), or whether internal audit outsourcing can be a superior

option in this scenario. Concerning the organizational status of the function, we also ask how internal

audit contribution to audit committees’ assurance is impeded in a serving two masters setting and how

conflicting reporting lines or informal meetings with the board or senior management affect internal audit

effectiveness. Also, we encourage future research to gather further insights about how audit committee

members factor in and evaluate IAF contribution to audit committee issues and, in general, ties to the

board (e.g., as a trusted advisor) when reviewing the IAF budget.

Further, because interaction with the audit committee is vital much the same for internal as for

external auditors, it should be clarified how the involvement of audit committees influences internal

and external audit processes and whether a close partnership between both providers of audit services

might be a (measurable) constituent of enhanced audit committee effectiveness. More precisely, we

hope that future studies can establish a deeper understanding about instances in which audit committee

members either encourage or discourage internal auditors to dedicate resources and effort to the external

audit process and how possible differences, such as the provision of contradictory evidence, between

the two parties are being resolved by the audit committee in exerting effective oversight. Also, little is

known about the circumstances in which members of the audit committee are most likely to develop

strong formal or informal ties with CAEs and whether such ties are critical for the independence of

39
the function. Considering the IAF’s specific role, we also encourage future research to address whether

internal auditors (through their respective work) take on a mediating role by resolving accounting related

issues between the audit committee and the external auditor and to what extent this is related to financial

statement quality.

Finally, our study seeks to stimulate the scientific discourse in terms of regulatory implications for

internal auditing. For example, how publicly disclosed information (e.g., within a descriptive Internal

Audit Report) about the IAF would be helpful in evoking quality improvements of the function and

if so, what components or criteria should be disclosed about the IAF (e.g., certain information that

are deemed particularly vital in the eyes of financial investors when evaluating a potential investment).

Notwithstanding potential positive aspects, detrimental effects of such public disclosures should also be

accounted for while it might also be necessary to consider different effects for both smaller and larger

firms.

Considering the highly critical voices during the aftermath of the recent proposal withdrawal by the

NASDAQ, which aimed at requiring listed firms to implement an IAF, we hope that upcoming studies

can provide answers pertaining to the future role of the internal auditor. For example, how internal

audit effectiveness is impaired by a prevalent negative stigmatization of the profession and what could

be done to improve this oftentimes unfavorable image.

6. Discussion and conclusion

Different conclusions can be drawn from the remarks of the preceding sections of our study. First, most

of the descriptive information provided substantiates the notion of increased research attention towards

internal auditing. As for possible reasons, the occurrence of several incisive events, such as the foundation

of the Institute of Internal Auditors or the issuance of the Sarbanes-Oxley Act in 2002, can be linked to

leaps in publications over time. While the intensity of cooperation in the research field has been steadily

increasing, given the advanced technological proceedings, only a small proportion of authors seem to

be truly recognized on a permanent basis within this relatively small subarea of accounting research.

However, we find evidence for the existence of a small core of researchers who publish more frequently on

this topic and receive recognition in the from of consistent citations. We also find that these researchers

are strongly interconnected. We propose that all three major collaborative groups identified might also

be intertwined, which is why more data should be gathered and evaluated.

Second, the co-citations unveil a fragmented structure of internal audit research where a triangulation

of preeminent research areas is framing the topics of interest of authors in the five accounting journals.

As discernible, corporate governance, auditing and (internal controls over) financial reporting are shaping

the context of the core body of research output that constitutes the internal audit domain. This notion

40
highly corresponds to the concept of the governance ”mosaic” (Cohen et al., 2004) which quite profoundly

encapsulates the network structure. An obvious flipside to this is that studies which target internal

auditing practice or processes on a micro level are relatively scarce. Also, we find only few studies that

relate to internal auditing professional standards (e.g., possible conflicts of assurance and consulting

activities). However, the interrelationship between internal and external auditing emerges as a major

issue, as (non-)audit fees and the reliance on internal auditors appear to be highly important not only

within the network, but also from a regulator’s point of view.

It is in this context that it becomes obvious that some of the major topics pertaining to the future role

and development of internal auditing are being frequently overlooked when it comes to citation patterns

within published articles; not only in the identified ”top five” journals, but also in those outside of this

list (e.g., AJPT). We therefore want to propose more research output that deals with the actual and

future role of internal auditing and critically challenges the existing concepts, especially regarding the

concept of IAF quality, that prevail within the scientific community.

The highly inconsistent consideration of the function as an integral part of companies’ governance

frameworks in research, however, gives rise to the notion that archival studies either completely abstain

from considering or inherently struggle to come up with appropriate proxies for the IAF and its effec-

tiveness. As the sole exception, our third network cluster documents a variety of attempts to proxy for

internal audit quality, notwithstanding the fact that introduced measures (e.g., the management train-

ing ground concept) lack coherence and consistency. This development is contrasted by the increasingly

popular view that internal auditing is a key component of the corporate governance mosaic (e.g., Cohen

et al., 2010). We therefore conclude that while the citation network provides strong scientific consensus

for an incremental impact of especially high quality internal audit functions, that are either directly

or indirectly (i.e., by serving other involved governance partners) associated with financial statement

quality, the frequently proclaimed lack of publicly available information (e.g., on IAF quality attributes)

ultimately inhibits a more profound integration of the function into corporate governance research. Given

that recent insights indicate a heightened relevance of such publicly available information to external

stakeholders, we hope to further encourage researchers, practitioners as well as policy makers to engage

in the discussion about the usefulness of internal auditing and related information disclosures.

Overall, we find strong evidence that supports the notion that internal audit research within ac-

counting (journals) is deeply rooted in adjacent research fields and is driven in many ways by regulatory

implication within these fields. As a driving force behind the increased attention, we recognize the

Sarbanes-Oxley Act (2002) with its Sections 201, 301, 302, 404, and 407 that, although only indirectly,

spurred the research that deals with internal auditing.

Our study aims to contribute to the existing literature by offering a palpable and holistic way of

identifying the different subdomains that are shaping the context of internal audit research and finally

41
shed light on the differing perspectives that incorporate the IAF within the major accounting journals.

We also show which topics and studies are perceived as being of distinguished relevance in the eyes of

the scientific community. With the addition of supplementary information concerning the publishing

and collaboration activity as well as applied research methodologies, we also seek to set our results into

relation with the general development of the research field.

We do however notice that our results are subject to several limitations that could possibly be looked

at in a follow-up study. A first concern is the consideration of articles in which internal auditing is only of

subsidiary importance. We try to adjust for this potential bias by setting a higher co-citation threshold

for the final network. However, we ultimately argue that because we are interested in the complete

shape and boundaries of the research field, much information would be lost in a more narrow approach.

Another limitation originates from the fact that we only include the five highest ranked accounting

journals in our study, which consequently leads to the omission of qualitatively adequate journals from

various other (sub)disciplines (e.g., management or auditing). We assume that while the spectrum of

internal audit research within accounting is the broadest, the research context for internal auditing within

other disciplines such as auditing or management might be inherently different and therefore produce

ambiguous or even diluted results when included. As a possible solution we propose that in future

studies, additional co-citation networks could be constructed based on articles from adjacent disciplines

to contextualize diverging perspectives on internal audit research.

42
 Author Year Focus Subject and scope of literature analysis

Allegrini et al. 2006 CBOK EU Analysis of studies on recent changes of IA activities

Abdolmohammadi et al. 2006 CBOK USA Overview over scope of activities and abilities of auditors
Cooper et al. 2006 CBOK APAC Analysis of literature on core IAF activities (Asia-Pacific)
Burnaby and Hass 2009 CBOK Global Analysis of IAF characteristics and alignment with Standards
Eulerich et al. 2013 CBOK EU Positioning of the IAF within the governance framework
Burnaby et al. 2015 CBOK SA Literature on the scope and quality of IAF activities
in South Africa
Gramling et al. 2004 Corp. Gov. Framework for the role of the IAF within corporate governance
Brennan/Solomon 2008 Corp. Gov. Analysis and classification of studies on corporate governance

43
Beekes et al. 2011 Corp. Gov. Review of accounting and finance research on corporate governance
Carcello et al. 2011 Corp. Gov. Short summary of twelve overview studies on internal auditing
Ali et al. 2014 Corp. Gov. Demonstrates growing importance of corporate governance
and focuses on the changing role of the IAF
Stewart/Subramaniam 2010 IAF attributes Discusses studies on the organizational status of the IAF
considering independence and objectivity
Appendix A. Internal auditing review articles

Bame-Aldred et al. 2013 Reliance on IAF Analyzes literature focusing on factors that determine
Recent traditional review articles on internal auditing

external auditors reliance on the IAF

Lenz/Hahn 2015 Effectiveness Analyze effectiveness of the IAF through the eyes of
internal auditors and different stakeholders of their product
Appendix B. Transformational steps

The basic steps that are required to transform each of the respective symmetric co-occurrence matrices

into displayable maps involve:

• Calculation of a similarity matrix which essentially terms the normalized co-occurrence matrix.

Normalization is attained by applying a similarity measure that corrects for variations in the

number of co-occurrences (cij ) and occurrences (wi or wj ) of two contained items (i and j ). The

similarity measure of choice is the association strength sij which denotes the relation between the

actual occurrence of two items (i and j ) and their expected occurrence. It is calculated as follows:

cij
sij = . (1)
wi wj

• Visual mapping of similarities where an objective function considers each item pair within the

similarity matrix and minimizes the weighted sum of their squared Euclidean distances. A higher

similarity is implied by a higher weight of squared distances and thereby leads to a closer positioning

within the two-dimensional map. The entirety of cited documents or observed authors are hereby

arranged in a way so that more similar documents or authors are situated as close as possible,

whereas less similar ones lie more distant within the map. The function comprising vectors xi

and xj (location of item i and j within the two-dimensional map) and the normed euclidean || • ||

distances are minimized as follows:

X
V (x1 , ...xn ) = sij ||xi − xj ||2 , (2)
i<j

and is subject to the following constraint:

2 X
||xi − xj || = 1. (3)
n(n − 1) i<j

• Translation, rotation and reflection that involve principle component analysis and median analysis

in order to avoid inconsistent results.

44
Appendix C. Academic affiliations

Most influential academic affiliations

Rank Academic institution

(Single-authorships / Co-authorships / Co-authorships* / Total)

1 Brigham Young University (1 / 10 / - / 11)

2 Northeastern University, Boston (- / 10 / - / 10)
3 Bentley University (- / 4 / 4 / 8)
4 University of Arkansas (- / 7 / - / 7)
5 University of Alabama (2 / 4 / - / 6)
6 University of North Carolina (3 / - / 3 / 6)
7 University of Kansas (1 / 5 / - / 6)
8 University of Wisconsin, Madison (- / 6 / - / 6)
9/10 Santa Clara University (- / 3 / 3 / 6)
9/10 University of Pittsburgh (- / 3 / 3 / 6)
11-13 University of Southern California (1 / 4 / - / 5)
11-13 University of Texas, Austin (1 / 4 / - / 5)
11-13 Harvard University (1 / 4 / - / 5)
14/15 University of Alberta (- / 5 / - / 5)
14/15 Université Laval (- / 5 / - / 5)
16 University of Florida (1 / 3 / - / 4)
17-19 University of Manchester, UK (- / 4 / - / 4)
17-19 University of Massachusetts, Amherst (- / 4 / - / 4)
17-19 University of Tennessee (- / 4 / - / 4)
20 Carnegie Institute of Technology (1 / 2 / - / 3)
*all co-authors from the same institution.

45
Appendix D. Research approaches

Research approaches on internal auditing in the top five accounting journals

(1) (2) (3) (4) (5) (6)

Experimental Qualitative Survey Archival Conceptual Mixed Methods

Total Pct. Total Pct. Total Pct. Total Pct. Total Pct. Total Pct.

Interval 1926 - 1955 - - 8 23% 3 8% 7 20% 17 49% - -

1956 - 1985 7 16% 1 2% 5 11% 21 47% 10 22% 1 2%
1986 - 2016 17 19% 6 7% 20 22% 41 45% - - 6 7%

Source TAR 6 8% 11 14% 6 8% 29 36% 26 33% 1 1%

CAR 6 20% - - 9 30% 15 50% - - - -
AOS 6 15% 4 10% 8 20% 17 41% - - 6 14%
JAE - - - - 1 14% 6 86% - - - -
JAR 6 46% - - 4 31% 2 15 % 1 8% - -
Total 24 14% 15 9% 28 16% 69 41% 27 16% 7 4%

46
Appendix E. Research questions

Research Questions:

1. How does the current quality evaluation concept (as constituted by the literature and Statements of

Auditing Standards (SAS)) of internal audit activities and attributes truly caption internal audit

quality and how can it be expanded? How are more indirect measures such as organizational

support for the IAF (e.g., CAE formal and informal ties to the board and senior management);

prior work experience or education; fit between internal auditor’s attributes and the IAF activities;

level of integration into a three lines of defense model; IAF compensation, diversity and structure;

auditee perception of the IAF; impact of a management training ground; general audit scope (e.g.,

extent of consulting services, audits on ethical behavior); and IAF assertiveness with regards to

the implementation of findings related to internal audit quality? What role do attitudinal and

behavioral measures (e.g., work satisfaction, organizational commitment, intent to leave) play in

this context?

2. How are external quality assessments a meaningful proxy for high quality IAFs as they represent

an independent assessment based on the contemporary Statements of Auditing Standards? How

do former ties to the audit firm possibly undermine this notion of independence?

3. What are sufficient approaches for measuring audit quality outcomes (e.g. implementation of

findings, reduction of audit fees, audit duration, reporting timeliness, stakeholder satisfaction)?

4. How do internal and external perspectives (e.g., senior management, external auditor, CAE) differ

in evaluating IAF quality measures?

5. Are singular reporting lines either to senior management or the board helpful in promoting IAF

effectiveness?

6. How is internal audit quality related to different measures of external audit quality (e.g., timeliness

of audit reports, going concern opinions)?

7. In how far does a different understanding of IAF quality amongst practicing internal and external

auditors exist?

8. What is the role of internal auditing in the case of a Section 404 material weakness disclosure and

what are the consequences (e.g., restructuring or CAE dismissal) for the function? Do differences

for outsourced IAFs exist? How can research methods based on other than archival evidence,

such as qualitative or experimental methods based evidence, add a deeper understanding of this

relationship?

47
 9. What specific role do internal auditors and their interaction with the external auditor and audit

committee have in the remediation or ex ante rectification of internal control problems?

10. How do EDP audit tools such as continuous auditing affect internal auditors activities related to

financial statements and consequently the quality of reported earnings?

11. What are sufficient ways for CAEs to bridge personnel shortages?

12. How does internal audit contribution and especially expected services related to audit committees

effectiveness differentiate within different industries?

13. Which activities and characteristics of the IAF are perceived as essential in supporting audit

committees self-perceived substantial effectiveness?

14. How severe is internal audit contribution to audit committees’ assurance impeded in a serving two

masters setting? How is internal audit effectiveness affected by conflicting reporting lines and what

impact do informal meetings have?

15. Which internal audit activities are perceived as particularly important by members of the audit

committee in enhancing audit committee effectiveness? What implications can be drawn in view

of the future role of the internal auditor? How does this differ between smaller and larger firms?

16. What are common audit committee issues that involve internal auditors’ work in the process of

resolution?

17. How do audit committee members factor in and evaluate IAF contribution to audit committee

issues and ties to the board in general when reviewing the IAF budget? How can the process of

IAF budget negotiation be described? What is the role of the CAE in the process of negotiation?

18. In which instances do audit committee members incentivize internal auditors to dedicate resources

and effort to the work of the external auditor? How are possible differences between the two parties

resolved by the audit committee in exerting effectiveness?

19. How do audit committees evaluate conflicting evidence provided by the external and internal au-

ditor?

20. Is a close partnership of the external and internal auditor a (measurable) constituent of enhanced

audit committee effectiveness?

21. How do internal auditors (through their respective work) play a mediating role when resolving

accounting related issues between the audit committee and the external auditor?

22. To what extent is internal auditing able to substitute certain external audit or non-audit (e.g.,

consulting) services as perceived by audit committees?

48
23. How critical is the audit committees’ role in promoting internal audit independence and objectivity

in the eyes of the latter?

24. To what degree is highly insightful information and competence provided by the IAF able to

compensate a lack of audit committee financial expertise or independence?

25. In which setting are members of the audit committee most likely to develop strong formal or

informal ties with CAEs?

26. What IAF structure is advantageous regarding audit committee relationship and support if the

firm operates in an international environment (international hubs versus centralized headquarter)?

How does internal audit outsourcing influence this relationship?

27. Can the concept of professional skepticism be transferred the internal audit profession in explaining

enhanced contribution to audit committee effectiveness?

28. How do rotational career programs, such as the management training ground concept, either posi-

tively or negatively affect internal auditors’ contribution to audit committee effectiveness?

29. How do audit committee directors seek to exculpate themselves through internal auditing in an

event of a material misstatement?

30. How do internal auditors benefit from potential knowledge spillovers when assisting external audi-

tors?

31. Is internal auditors’ judgment decision making affected when being supervised by the external

auditor?

32. What are efficient ways for internal auditors to compensate effort or personnel devoted to the

financial statement audit of the external auditor?

33. Considering former backgrounds of internal auditors: Are former ties to the audit firm helpful in

promoting a common ground between the internal external auditors which consequently promotes

cooperation or audit quality?

34. Are external auditors more likely to rely on work of IAFs whose quality has been independently

assessed by an external party? How is a client’s bargaining power possibly affected by this instance?

35. Considering the highly critical voices during the aftermath of the recent proposal withdrawal by

the NASDAQ which aimed at requiring listed firms to implement an IAF: How is internal audit

effectiveness impaired by a prevalent negative stigmatization of the profession? What are sufficient

ways to improve this oftentimes unfavorable image?

49
36. How are publicly disclosed information (e.g., within a descriptive Internal Audit Report) about

the IAF helpful in evoking quality improvements of the function? Based on what components or

criteria should information about the IAF be disclosed? What disclosed information related to

internal auditing is deemed particularly vital in the eyes of the financial investors when evaluating

a potential investment?

37. What are potential downsides of IAF information disclosures?

50
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