Bentley University
https://bentley.zoom.us/j/5085085678  Free Event

Free Event

The PhD Program is pleased to invite you to attend the Dissertation Defense of Melissa E. Renschler. Those interested in receiving a copy of the dissertation paper in advance are invited to contact Melissa directly.  As a result of the coronavirus spring semester PhD Defenses will be conducted remotely via Zoom.  Please see the remote connection information below.

 

DISSERTATION DEFENSE ANNOUNCEMENT

FOR THE DEGREE OF PHD IN ACCOUNTANCY

 

 PhD Candidate:  Melissa E. Renschler

TitleThe Influence of Internal Audit Competency on Financial Reporting Quality and Enterprise Risk Management

Date & Time:  Thursday, April 2nd, 2020, 9:30am – 11:30am

LocationVia remote connection

Remote ConnectionJoin from PC, Mac, Linux, iOS or Android: https://bentley.zoom.us/j/5085085678 (or go to zoom.us and join the PhD defense with the Meeting ID 508-508-5678)

Remote Connection Instructionshttps://goo.gl/6RxFTd

Dissertation Committee ChairRani Hoitash, John E. Rhodes Professor of Accountancy, Bentley University

Committee Members:  Gopal Krishnan, Trustee Professor of Accountancy, Bentley University; Udi Hoitash, Associate Professor of Accountancy and Lilian L. and Harry A. Cohen Research Professor, Northeastern University.

 

ABSTRACT

 

The internal audit function (IAF) is critically important to financial reporting quality and enterprise risk management (ERM). Following both the Sarbanes-Oxley Act of 2002 and the financial crisis of 2008, there have been improvements to other monitoring functions, such as the audit committee, management, and the external auditor, but regulation over the IAF is nearly absent. Further, our understanding of how IAF competency is developed and how IAF competency impacts both financial reporting quality and ERM outcomes is limited. My dissertation consists of three archival studies that investigate IAF competency using LinkedIn data. Taken together, these three studies contribute to a stifled IAF literature that is limited in its data availability and to an emerging accounting literature that seeks to understand more about accounting and audit personnel at the individual level. Specifically, I examine determinants of IAF competency, associations of IAF competency and financial reporting quality, changes to IAF competency as an outcome of financial reporting failures, and IAF competency as a determinant to ERM quality and ERM oversight disclosure. Using a new dataset that captures ten dimensions of IAF competency, I hope to contribute to an important area at the intersection of audit and corporate governance.

 

The first paper (sole-authored) reviews the extant IAF literature, describes a data collection protocol for hand-collected, individual-level, and longitudinal IAF personnel data from LinkedIn, and develops a comprehensive and objective IAF competency measure that incorporates ten components and can easily be linked to other publicly available data sources. I use this new measure to investigate the determinants of IAF competency. Despite a niche of IAF-related studies borne from survey-based sources, prior literature has not paid much attention to investigating what determines higher levels of IAF competency. This study finds evidence consistent with IAF competency improving over time and audit committee accounting expertise influencing higher competency. This study is important as it investigates IAF competency over a six-year period and estimates associations between other monitoring characteristics. Further, this study is academically important because the data collection methodology can inform future research using LinkedIn to develop personnel-related measures.

 

The second paper (co-authored with Rani Hoitash and Udi Hoitash) examines firm changes to IAF competency in light of financial reporting failures. Provided the regulatory scrutiny over other monitoring mechanisms, it is possible that firms improve other sources of monitoring that are highly visible to stakeholders (e.g. the audit committee; CFO; external auditor) when a reporting failure occurs. However, it is also possible that firms committed to monitoring quality improve IAF competency ex-post as the IAF plays a direct role in potentially mitigating future failures. This study finds evidence consistent with IAF competency improving in the year following a financial reporting failure (i.e. material weakness disclosure; restatement). This study is important because it documents firms’ swift movement to improve competency in light of greater reporting risk, suggesting firms recognize the importance of the IAF in the corporate governance structure. Further, this study demonstrates that the conversation around IAF regulation is still important as not all firms are equally likely to increase IAF competency after a failure.

 

The third paper (sole-authored) examines whether IAF competency is associated with ERM quality and ERM oversight disclosure decisions. Recent financial crises have prompted firms to focus on improving ERM practices, and recent governmental rulings have prompted greater disclosure about firms’ risk management processes. Due to the COSO ERM framework’s constraint that identifies management-specific risk responsibilities, the IAF may not have enough reach within the ERM framework to improve ERM quality or to influence ERM oversight disclosure decisions. However, it is also possible that the IAF’s direct role in risk identification and monitoring of risks helps to provide information to management and to the board that enables their monitoring of ERM quality and provides about the necessary confidence to disclose ERM oversight practices. This study finds evidence consistent with IAF competency helping to improve ERM quality and the likelihood and extent of ERM oversight disclosure in the proxy statement and audit committee charter. This study is important because it documents the value the IAF contributes to the ERM process, beyond its traditional financial reporting role. Further, this study demonstrates that management and boards can take advantage of IAF’s monitoring capabilities in order to bolster ERM performance and comfort around ERM monitoring processes.

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