Eulerich, M. / Velte, P. / van Uum, C.
Recently, the composition of boards is increasingly considered as a significant mechanism of good corporate governance. Thus, the question arises whether a heterogeneously or rather a homogenously composed board contributes to the efficiency of a company’s management and monitoring. Therefore, the economic impact of board size and board diversity aspects needs to be investigated empirically. This study examines the relation between board diversity and corporate performance for the German two-tier system by a comprehensive literature analysis as well as an empirical analysis. Hence, board diversity is characterized by the attributes gender, age, nationality and in-/outsiders. A comparable analysis including multiple dimensions for German companies has not been performed, yet. Due to the diverging results presented in our literature review, we ought to consider our results within the empirical evidence impartial and open-minded. Surprisingly, we mostly find negative effects of various board diversity characteristics on corporate performance figures, especially regarding age and national diversity attributes. However, our findings should not be generalized as prior research on diversity characteristics is twofold.
Eulerich, M. / Zipfel, S.
We investigate several variables that are theoretically associated with the internal audit function (IAF) having an active role in corporate governance with reference to a worldwide model and distinguishing the two leadership systems in the United States (U.S.) and Germany. Using responses from 572 U.S. and 87 German Chief Audit Executives (CAEs) in the CBOK (2010) database, in total 1,957 worldwide IAFs, for our investigation, we find the following: an IAF having an active role in corporate governance is significantly and positively associated with adherence to a governance code, an internal control framework, CAE’s additional education, quality assurance and improvement program (QAIP) and the implementation of a risk-based audit plan in the worldwide investigation. Regarding Germany, QAIP, input from the Audit Committee, as well as reporting to the Audit Committee is positively related to the IAF having an active role in corporate governance. In the U.S. model only the presence of a QAIP is positively associated with the IAF having an active role in corporate governance, regarding our main testing variables.
Eulerich, M. / Zipfel, S.
Internal auditing is deemed to be a central supporter of internal and external stakeholders. The internal audit function as an independent entity of supervision is positioned within the organization in such a way that it serves the board of directors and audit committee as a “surveillance system”, which aggregates and monitors performance of organization-wide controls, the internal control system, and the entire governance structure. This system is often referred to as the Three-Lines-Of-Defense (TLoD) model. This specific model incorporates traditional operational controls (1st line of defense), the internal control system (2nd line of defense) and internal auditing (3rd line of defense). However, the existence of several stakeholders in the TLoD model raises potential conflicts within the auditing activity due to different requirements, interests, and reporting paths. This stress ratio between internal auditing, stakeholders, and audit committee can be comprised by the expression “serving two masters”. Besides the existence of different addresses there are several factors, which affect the composition of the “serving two masters” problem.
The significance of the “serving two masters” problem has increased in the one-tier and two-tier system. It particularly describes the connection between internal auditing, board of directors and supervisory board or the audit committee. The growing importance of this topic is mainly supported by global regulatory modifications. Considering these developments, the internal audit function is no longer just subordinated to the board of directors but becomes increasingly related to the supervisory board or audit committee within the TLoD framework.
The role of internal auditing within corporate social responsibility – a descriptive and literary investigation
Eulerich, M. / Gerritsen, A.D. / Kamp, T.
In 1981 the researcher Elmer B. Staats wrote an article about the challenges auditing will have to face in the 21st century. While recognizing that the range of activities are getting broader he also suspects that by the year 2000 internal auditors will perform tasks that can be categorized under the term social accountability (Staats, 1981:6). Nowadays, corporate social responsibility as well as sustainability are major topics in wide parts of the economy and science. This development suggests that corporate social responsibility should also be relevant for internal auditing in some way. Surprisingly, the CBOK study for internal auditing of 2010 does not comply these expectations. Only few internal auditors perform social or sustainability audits.
This paper aims to examine how the link between corporate social responsibility and internal auditing has developed in the past 31 years and what functions internal auditing could adopt regarding corporate social responsibility. To investigate this issue, a literature review based on 65 scientific papers was carried out. In this context, it is determined that although the subject is discussed in scientific literature it has not reached the mindset of internal auditors yet.
An empirical investigation of the role of Internal Auditing in Public and Non-Profit Organizations
Eulerich, M. / Bischof, A. / Theis, J.
The purpose of this paper is to investigate the key factors associated with the role of the internal audit function (IAF) within the Public Corporate Governance in direct comparison to the private sector. Using data from the international conducted CBOK (2010) survey, the empirical examination contains the responses from CAEs of collectively 691 public respectively non-profit organizations and 1.759 privately held or publicly-traded (listed) companies. We find that the existence of a risk-based plan, a quality assurance and improvement program, an internal control framework as well as the experience of the CAE are positively associated with the role of internal auditing. The findings concerning the private sector are in accordance to the results in 2006, assuming that the CAE Certification is negatively related to the role of the IAF within corporate governance. Our sample is limited to the CAEs who are also IIA members and, thus the perceptions may derivate from actual practice. The identification of descriptive as well as explorative differences between the private and public sector may have practical implications for CAEs in public and non-profit-organizations. Therefore, it provides new approaches in order to increase the role for their IAFs in corporate respectively public corporate governance.
An empirical Analysis for the Banking Industry
Eulerich, M./Zipfel, S.
The challenges of the global financial market, with its dynamic and complex organizations, products and various risks, require a well-working governance structure to enhance the supervision and control of banks. Therefore, the Internal Audit Function (IAF) in the banking industry should act as an independent part of the internal governance structure and should play a crucial role in the assessment and enhancement of other internal governance parts, such as internal control, risk management and within the different governance system and processes.
Also different regulators recognized the central position of the IAF. The Basel Committee on Banking Supervision (2012), for instance, as a supra-national regulator, defines the IAF's position as a provider of "vital assurance to a bank's board of directors and senior management". Furthermore, Audit Committee's oversight of the IAF's work assures that the effectiveness of the bank's internal audit function is given at any time. A well-working IAF with a close relationship to the Audit Committee should therefore improve the entire governance processes.
As there is no empirical evidence whether the IAF improves Corporate Governance in fact, the aim of this paper is to analyze the impact of the IAF on the governance structure in the banking sector and to confirm that a close collaboration with the Audit Committee increases the overall process. Proposing a Structural Equation Model (SEM) utilizing a worldwide dataset of 2,195 responses from internal auditors of the banking sector, we observe a positive relationship between a strong IAF and effective governance processes.