Relationship between the attributes of the internal audit activity and the adoption and implementation of international financial reporting standards

Document Type : Research Paper

Authors

1 Ph.D Candidate, Accounting, Islamic Azad Univercity, Khorramshahr-Persian Gulf International Branch, khorramshahr, Iran

2 Assistant Prof. Department of Accounting, Islamic Azad University, Masjedsoleiman Branch, A.k.salehi@iaumis.ac.i

Abstract

 Introduction
Internal auditing is considered as an important part of international financial reporting policies and strategies that can lead to value creation for stakeholders. One of these important areas is the adoption and implementation of International Financial Reporting Standards, which have focused on internal audit functions over the past few years. Therefore, the aim of this paper is to examine the features of internal audit and its impact on the adoption and implementation of International Financial Reporting Standards.
 
 Hypotheses
H1: The internal audit has an impact on the adoption and implementation of IFRS
H2: The relationship between internal and independent auditors affects on the adoption and implementation of IFRS
H3: The independence of the internal audit affects on the adoption and implementation of IFRS
H4: The professional competence of internal auditors affects on the adoption and implementation of IFRS
H5: Management support for the internal audit unit has an impact on the adoption and implementation of IFRS.
 
 Methods
This research is classified as applied research in terms of research purpose and as descriptive / survey research in terms of the nature of analysis. Also, in terms of time, its data are cross-sectional in 2021. A standard questionnaire was applied for collecting the data, which is the basis for structural equation analysis and partial least squares analysis to fit the desirability of the research model. The statistical population of the study consists of auditor’s members of National Association for Official Auditors.
 
 Results
The findings indicate the internal audit and management support from it have a significant effect on the adoption and implementation of IFRS, while the relationship between internal and independent auditors, the independence of the internal audit and the professional competence of internal auditors have not a significant effect on the adoption and implementation of IFRS.
 
 Conclusion
Results demonstrate that the internal audit unit can play an effective role in the acceptance and implementation of IFRS and managers' attention are urged to consider the importance of that role and to support it.
 
Keywords: Effectiveness, Internal audit unit, International Financial Reporting Standard, Independence and Competence of internal audit, Structural Equation.
 
 

Highlights

 Ahmed, K., Chalmers, K., & Khlif, H. (2013). A meta-analysis of IFRS

adoption effects. International Journal of Accounting, 48 (2) ,173-217.

Alzeban, A. & Gwilliam, D. (2014). Factors affecting the internal audit effectiveness: A survey of the Saudi public sector. Journal of International Accounting Auditing and Taxation, 23(2): 74-86.

Amel, K., & Anis, J. (2017). The mediating effect of REM on the relationship between CEO overconfidence and subsequent firm performance moderated by IAS/IFRS: Moderated-mediation analysis.Research in International Business and Financ, 42, 338-352.

Baatwah, S.R., Omer, W.K.H. , & Aljaaidi, K.S. (2022). Does the expertise of outsourced IAF providers affect audit efficiency? Empirical evidence from an emerging market, Pacific Accounting Review, 34(2): 249-273.

Ball, R. (2006). International Financial Reporting Standards (IFRS): pros and cons for investors. Accounting and Business Research, International Accounting Policy Forum, 36(1), 5-27.

Betti, N., Sarens, G. & Poncin, I. (2021). Effects of digitalisation of organisations on internal audit activities and practices, Managerial Auditing Journal, 36(6): 872-888.

Bruggemann, U., Hitz, J.M., & Sellhorn, T. (2013). Intended and unintended consequences ofmandatory IFRSadoption: A review of extant evidence and suggestions forfuture. Research. European Accounting Review, 22 (1), 1-37.

Bryce, M., Ali, M.J., & Mather, P.R. (2015).Accounting quality in the pre-post-IFRS adoption and the impact on audit com-mittee effectiveness - evidence from Australia. Pacific-Basin Finance Journal, 35(A), 163-181.

Daske, H., Hail, L., Leuz, C., & Verdi, R. (2013).Adoptinga label: heterogeneity in the economic consequences of IFRSadoptions. Journal of Accounting Research, 3(51), 495-547.

DeFond, M., Gao, X., Li, O.Z., & Xia, L. (2019). IFRS adoption in China and foreign institutional investments. China Journal of Accounting Research, 12(1), 1-32.

Faraj, Sh., & El-Firjani, E. (2016). Challenges Facing IAS/IFRS Implementation by Libyan Listed Companies.University Journal of Accounting and Finance, 2(3), 57-63.

Fuad, F., Agung, J., & Puji, H. (2019). Does IFRS convergence really increase accounting qualities? Emerging market evidence. Journal of Economics, Finance and Administrative Science, 24(48), 205-220.

George, E., Ferguson, T. D., & Spear, N.A. (2013). How much does IFRS cost? IFRS adoption and audit fees. The Accounting Review, 88(2), 429-462.

Gordon, L., Loeb, M., & Zhu, W. (2012). The impact of IFRS adoption on foreign direct investment. Journal of Accounting and Public Policy, 4(31), 98–374.

Gros, M. Koch, S., & Wallek, C. (2017). Internal audit function quality and financial reporting: results of a survey on German listed companies. Journal of Management & Governance, 21(2), 291–329.

Gyasi, A.K. (2013). Adoption of International Accounting Standards. Thesis. University of Applied Sciences. Publications.thesis. Adebayo Agbejule.

Hail, L., Leuz, CH. & Wysocki, P. (2010). Global Accounting Convergence and the Potential Adoption of IFRS by the U.S. (Part I): Conceptual Underpinnings and Economic Analysis. Accounting Horizons, 24 (3), 355–394

Jung, Y. , & Cho, M. K. (2022). Impacts of reporting lines and joint reviews on internal audit effectiveness, Managerial Auditing Journal, 37(4): 486-518.

Kabir, H., & Rahman, A. (2016). The role of corporate governance in accounting discretion under IFRS: Goodwill impairment in Australia. Journal of Contemporary Accounting & Economics, 12(3), 290-308.

Khlif, H., & Achek, I. (2016). IFRS Adoption and Auditing:A Review. Asian Review of Accounting, 24(3), 338-361.

Kim, J., & Shi, H. (2012). Voluntary IFRS adoption, analyst coverage, and information quality: International evidence. Journal of International Accounting Research, 11(1), 45–76.

Krichene, A. , & Baklouti, E. (2021). Internal audit quality: perceptions of Tunisian internal auditors an explanatory research, Journal of Financial Reporting and Accounting, 19(1): 28-54.

Madah Marzuki, M., Abdul Rahman, A.R., Marzuki, A., Ramli, N.M. & Wan Abdullah, W.A. (2021). Issues and challenges of IFRS 9 in Malaysian Islamic financial institutions: recognition criteria perspective, Journal of Islamic Accounting and Business Research, 12(2): 239-257.

Madawaki, A., Ahmi, A. & Ahmad, H, N. (2022). Internal audit functions, financial reporting quality and moderating effect of senior management support, Meditari Accountancy Research, 30(2): 342-372.

Mantzari, E., & Georgiou, O. (2019). Ideological hegemony and consent to IFRS: Insights from practitioners in Greece. Critical Perspectives on Accounting, 59, 70-93.

Muller, V. (2014). The impact of IFRS adoption on the quality of consolidated financial Reporting. Procedia - Social and Behavioral Sciences, 109, 976-982.

Nurunnabi, M. (2017). Auditors perceptions of the implementationof international financial reporting standards (IFRS) in a developing country. Journal of Accounting in Emerging Economies, 7(1), 108-133.

Patroa, A., & Guptab, V.K. (2012). Adoption of international financial reporting standards (IFRS) in accounting curriculum in india - an empirical study. Procedia Economics and Finance, 7, 227- 236.

Pope, P.F., & McLeay, S.J. (2011). The European IFRS experiment: objectives, research challenges and some earlyevidence. Accounting and Business Research, 41(3), 233-266.

Redmayne, N.B., & Laswad, F. (2013). An assessment of theimpact of IFRS adoption on public sector audit fees and auditeffort – some evidence of the transition costs on changes in reporting regimes. Australian Accounting Review, 23(1), 88-99.

Roman, A. G., Mocanu, M., & Hoinaru, R. (2019). Disclosure style and its determinants

in integrated reports. Sustainability, 11(7), 1960.

Swait, N., Patel, A. & Maroun, W. (2018). Exploring the decision to adopt International Financial Reporting Standards early: The case of International Financial Reporting Standards 13. Journal of Economic and Financial Sciences, 11(1), 1-12.

Tenenhaus, M. ,  Amato, S. , & Esposito Vinzi, V. (2004). A global goodness-of-fit index for PLS structural equation modelling. Proceedings of the XLII SIS Scientific Meeting, 739-742.

Trimble, M. (2018). A reinvestigation into accounting quality following global IFRS adoption: Evidence via earnings distributions. Journal of International Accounting, Auditing and Taxation, 43, 18-39.

Trotman, A., & Duncan, K. (2018). Internal audit quality: Insights from Audit Committee members, senior management and internal auditors. Auditing: A Journal of Practice and Theory, 37(4), 235-259.

Wu, H., Chang, Y., Li, J., & Zhu, X. (2022). Financial fraud risk analysis based on audit information knowledge graph. Procedia Computer Science, 199(2022), 780-787.

Yunusa, A. (2014). The challenges of cdopting international public sector accounting standard (IPSAS) by nigeria. Journal of Social Sciences and PublicPolicy, 6(2), 29 – 39.

Zakari, M.A. (2014). Challenges of International Financial Reporting Standards (IFRS) adoption in Libya. International Journal of Accounting and Financial Reporting, 4 (2), 390–412.

 

 

Keywords

References

Ahmed, K., Chalmers, K., & Khlif, H. (2013). A meta-analysis of IFRS
adoption effects. International Journal of Accounting, 48 (2) ,173-217.
Alzeban, A. & Gwilliam, D. (2014). Factors affecting the internal audit effectiveness: A survey of the Saudi public sector. Journal of International Accounting Auditing and Taxation, 23(2): 74-86.
Amel, K., & Anis, J. (2017). The mediating effect of REM on the relationship between CEO overconfidence and subsequent firm performance moderated by IAS/IFRS: Moderated-mediation analysis.Research in International Business and Financ, 42, 338-352.
Baatwah, S.R., Omer, W.K.H. , & Aljaaidi, K.S. (2022). Does the expertise of outsourced IAF providers affect audit efficiency? Empirical evidence from an emerging market, Pacific Accounting Review, 34(2): 249-273.
Ball, R. (2006). International Financial Reporting Standards (IFRS): pros and cons for investors. Accounting and Business Research, International Accounting Policy Forum, 36(1), 5-27.
Betti, N., Sarens, G. & Poncin, I. (2021). Effects of digitalisation of organisations on internal audit activities and practices, Managerial Auditing Journal, 36(6): 872-888.
Bruggemann, U., Hitz, J.M., & Sellhorn, T. (2013). Intended and unintended consequences ofmandatory IFRSadoption: A review of extant evidence and suggestions forfuture. Research. European Accounting Review, 22 (1), 1-37.
Bryce, M., Ali, M.J., & Mather, P.R. (2015).Accounting quality in the pre-post-IFRS adoption and the impact on audit com-mittee effectiveness - evidence from Australia. Pacific-Basin Finance Journal, 35(A), 163-181.
Daske, H., Hail, L., Leuz, C., & Verdi, R. (2013).Adoptinga label: heterogeneity in the economic consequences of IFRSadoptions. Journal of Accounting Research, 3(51), 495-547.
DeFond, M., Gao, X., Li, O.Z., & Xia, L. (2019). IFRS adoption in China and foreign institutional investments. China Journal of Accounting Research, 12(1), 1-32.
Faraj, Sh., & El-Firjani, E. (2016). Challenges Facing IAS/IFRS Implementation by Libyan Listed Companies.University Journal of Accounting and Finance, 2(3), 57-63.
Fuad, F., Agung, J., & Puji, H. (2019). Does IFRS convergence really increase accounting qualities? Emerging market evidence. Journal of Economics, Finance and Administrative Science, 24(48), 205-220.
George, E., Ferguson, T. D., & Spear, N.A. (2013). How much does IFRS cost? IFRS adoption and audit fees. The Accounting Review, 88(2), 429-462.
Gordon, L., Loeb, M., & Zhu, W. (2012). The impact of IFRS adoption on foreign direct investment. Journal of Accounting and Public Policy, 4(31), 98–374.
Gros, M. Koch, S., & Wallek, C. (2017). Internal audit function quality and financial reporting: results of a survey on German listed companies. Journal of Management & Governance, 21(2), 291–329.
Gyasi, A.K. (2013). Adoption of International Accounting Standards. Thesis. University of Applied Sciences. Publications.thesis. Adebayo Agbejule.
Hail, L., Leuz, CH. & Wysocki, P. (2010). Global Accounting Convergence and the Potential Adoption of IFRS by the U.S. (Part I): Conceptual Underpinnings and Economic Analysis. Accounting Horizons, 24 (3), 355–394
Jung, Y. , & Cho, M. K. (2022). Impacts of reporting lines and joint reviews on internal audit effectiveness, Managerial Auditing Journal, 37(4): 486-518.
Kabir, H., & Rahman, A. (2016). The role of corporate governance in accounting discretion under IFRS: Goodwill impairment in Australia. Journal of Contemporary Accounting & Economics, 12(3), 290-308.
Khlif, H., & Achek, I. (2016). IFRS Adoption and Auditing:A Review. Asian Review of Accounting, 24(3), 338-361.
Kim, J., & Shi, H. (2012). Voluntary IFRS adoption, analyst coverage, and information quality: International evidence. Journal of International Accounting Research, 11(1), 45–76.
Krichene, A. , & Baklouti, E. (2021). Internal audit quality: perceptions of Tunisian internal auditors an explanatory research, Journal of Financial Reporting and Accounting, 19(1): 28-54.
Madah Marzuki, M., Abdul Rahman, A.R., Marzuki, A., Ramli, N.M. & Wan Abdullah, W.A. (2021). Issues and challenges of IFRS 9 in Malaysian Islamic financial institutions: recognition criteria perspective, Journal of Islamic Accounting and Business Research, 12(2): 239-257.
Madawaki, A., Ahmi, A. & Ahmad, H, N. (2022). Internal audit functions, financial reporting quality and moderating effect of senior management support, Meditari Accountancy Research, 30(2): 342-372.
Mantzari, E., & Georgiou, O. (2019). Ideological hegemony and consent to IFRS: Insights from practitioners in Greece. Critical Perspectives on Accounting, 59, 70-93.
Muller, V. (2014). The impact of IFRS adoption on the quality of consolidated financial Reporting. Procedia - Social and Behavioral Sciences, 109, 976-982.
Nurunnabi, M. (2017). Auditors perceptions of the implementationof international financial reporting standards (IFRS) in a developing country. Journal of Accounting in Emerging Economies, 7(1), 108-133.
Patroa, A., & Guptab, V.K. (2012). Adoption of international financial reporting standards (IFRS) in accounting curriculum in india - an empirical study. Procedia Economics and Finance, 7, 227- 236.
Pope, P.F., & McLeay, S.J. (2011). The European IFRS experiment: objectives, research challenges and some earlyevidence. Accounting and Business Research, 41(3), 233-266.
Redmayne, N.B., & Laswad, F. (2013). An assessment of theimpact of IFRS adoption on public sector audit fees and auditeffort – some evidence of the transition costs on changes in reporting regimes. Australian Accounting Review, 23(1), 88-99.
Roman, A. G., Mocanu, M., & Hoinaru, R. (2019). Disclosure style and its determinants
in integrated reports. Sustainability, 11(7), 1960.
Swait, N., Patel, A. & Maroun, W. (2018). Exploring the decision to adopt International Financial Reporting Standards early: The case of International Financial Reporting Standards 13. Journal of Economic and Financial Sciences, 11(1), 1-12.
Tenenhaus, M. ,  Amato, S. , & Esposito Vinzi, V. (2004). A global goodness-of-fit index for PLS structural equation modelling. Proceedings of the XLII SIS Scientific Meeting, 739-742.
Trimble, M. (2018). A reinvestigation into accounting quality following global IFRS adoption: Evidence via earnings distributions. Journal of International Accounting, Auditing and Taxation, 43, 18-39.
Trotman, A., & Duncan, K. (2018). Internal audit quality: Insights from Audit Committee members, senior management and internal auditors. Auditing: A Journal of Practice and Theory, 37(4), 235-259.
Wu, H., Chang, Y., Li, J., & Zhu, X. (2022). Financial fraud risk analysis based on audit information knowledge graph. Procedia Computer Science, 199(2022), 780-787.
Yunusa, A. (2014). The challenges of cdopting international public sector accounting standard (IPSAS) by nigeria. Journal of Social Sciences and PublicPolicy, 6(2), 29 – 39.
Zakari, M.A. (2014). Challenges of International Financial Reporting Standards (IFRS) adoption in Libya. International Journal of Accounting and Financial Reporting, 4 (2), 390–412.
 
 
Journal of Accounting Advances
Volume 13, Issue 2 - Serial Number 81
December 2021
Pages 311-341

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History

  • Receive Date: 21 November 2021
  • Revise Date: 07 May 2022
  • Accept Date: 07 May 2022

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