David A. Wood

Internal Audit Outsourcing and the Risk of Misleading or Fraudulent Financial Reporting: Did Sarbanes-Oxley Get It Wrong?

The Sarbanes-Oxley Act (SOX) prohibits companies from outsourcing internal audit work to their external audit provider. Competing predictions on the effects of this prohibition stem from two academic arguments relating to the provision of nonaudit services by the external auditor: knowledge spillover and economic bonding. Using proprietary data, we investigate whether companies that outsourced internal audit work to their external auditor pre-SOX had a higher risk of misleading or fraudulent external financial reporting (accounting risk). Consistent with the knowledge spillover argument, our results indicate that prior to SOX, outsourcing internal audit work to the external auditor is associated with lower accounting risk as compared to keeping the internal audit function (IAF) entirely in-house or outsourcing the work of the IAF to a third party other than the external auditor. The magnitude of the relation is significant, as outsourcing to the external auditor is associated with a 23 percent reduction in accounting risk relative to firms that kept the IAF in-house.

Differential environmental exposure alters NMDA but not AMPA receptor subunit expression in nucleus accumbens core and shell

Environmentally enriched (EE) rats show neurobehavioral differences relative to less stimulated, socially isolated (SI) littermates. Although experience-dependent cortical changes are presumed to underlie learning differences in these differentially housed animals, EE rats show reduced reward-seeking behavior and altered cytoarchitecture and dopaminergic function in the nucleus accumbens (NAcc), a brain area involved in adaptive, goal-directed activity. Given that glutamate and its interaction with dopamine regulate motivational and associative processing in this brain region, we assessed expression of the NR1 subunit of the N-methyl-D-aspartate (NMDA) receptor and the GluR1 subunit of the alpha-amino-3-hydroxy-5-methylisoxazole-4-propionic acid (AMPA) receptor in the NAcc core and shell of EE and SI rats. Our results indicate fewer intensely stained NR1 immunopositive neurons in both core and shell of EE relative to SI rats. No such differences were observed in GluR1 staining. These results suggest that environmental experience alters NMDA but not AMPA receptor expression in NAcc. Increased expression of the NR1 subunit in the NAcc of SI rats may augment impulsivity and reward-seeking behavior relative to EE rats.

Environmental enrichment reduces impulsivity during appetitive conditioning

Although environmental enrichment is presumed to enhance learning, appetitive behavior may also be altered by this experience: anticipatory responding for sucrose is reduced in environmentally enriched (EE) rats [van der Harst, J.E., Baars, A.M. and Spruijt, B.M. Standard housed rats are more sensitive to rewards than enriched housed rats as reflected by their anticipatory behaviour. Behav Brain Res 2003;142:151-156]. To assess the impact of differential environmental experience on learning and appetitive behavior, we trained 17 EE and socially isolated (SI) rats in a three-phase, operant-shaping procedure for sucrose reinforcement. In phase one, a feeder cue was paired with sucrose availability. In phase two, a nose poke to either one of two lit holes on the opposing wall activated the feeder cue. In phase three, the feeder cue was elicited by a poke to a single lit hole. While acquisition rates in phase one and phase two were similar, EE animals reached phase-three criteria [completion of 100 trials in 45 min and 15 or fewer bad pokes] faster than SI animals. These two groups showed similar session completion rates, reinforced and non-reinforced licking responses, and overall behavioral activity during phase three acquisition; however, SI rats performed more bad pokes (responses to the non-lit hole after nose-poke cue onset) and intertrial interval (ITI) pokes during this training period. Because all ITI (and presumably many bad) pokes were initiated before onset of nose-poke cue, this difference indicates greater anticipatory responding in SI animals. This experience-dependent alteration in appetitive behavior may explain, in part, the tendency of SI rats to show attenuated learning rates in appetitive contexts in which complex contingencies exist.

Dissociation of core and shell single-unit activity in the nucleus accumbens in free-choice novelty

Core and shell regions of the nucleus accumbens (NAcc) have been implicated in different aspects of goal-directed behavior. To assess these differences at the neuronal level, we evaluated core and shell single-unit activity in eight rats during one-trial, free-choice entry into a novel compartment. Changes in firing rate during approach of (orientation toward) and entry into (nose cross) novelty were assessed relative to a pre-novelty baseline when the animals were behaviorally active. Increases and decreases in neuronal activity were recorded in both regions during both phases of the novelty response. The regional distribution of these responses, however, was significantly different during the approach phase with roughly equal proportions of neuronal excitations (8/29) and inhibitions (6/29) in core but a shift away from excitation (2/40) toward inhibition (12/40) in shell. No regional differences emerged during subsequent approach of the familiar compartment from the novel chamber or during entry to either the novel or familiar compartment. Taken together, our results during approach to free-choice novelty indicate a regional dissociation in NAcc firing rate may play a role in appetitive behavior.

The Effects of Using the Internal Audit Function as a Management Training Ground or as a Consulting Services Provider in Enhancing the Recruitment of Internal Auditors

This paper examines factors that influence job applicants’ willingness to apply for positions in internal auditing. We predict and find evidence that job applicants are dissuaded from applying for internal audit positions. In two separate experiments involving participants at seven universities, we discover that this phenomenon is most prevalent for applicants with business experience. Experienced applicants are 20 and 33 percent less willing to apply for a position if it is labeled as “internal audit�? versus “accounting�? in the two experiments, respectively. In addition, we find that the only experimental condition that increases interest in applying for an internal audit position for experienced applicants occurs when the position advertises the combination of (1) a short stint in internal auditing and then a move from internal audit into a management position and (2) work primarily related to consulting services rather than assurance services. As a potential explanation for these findings, we find evidence that participants believe other business professionals have negative stereotypes of internal auditing — which likely dissuade potential job applicants from applying to work in internal audit. The results should prove informative to practitioners, internal audit professional organizations, and business professionals concerned with high quality corporate governance.

A Descriptive Study of Factors Associated with the Internal Audit Function Policies Having an Impact: Comparisons Between Organizations in a Developed and an Emerging Economy

Abstract An internal audit function (IAF) should positively impact financial reporting and governance, and add value to its organization. The study provides evidence on IAF factors (i.e. characteristics, activities, and work areas) associated with these types of impact and whether these factors, and their influence on various impacts, differ between a developed and an emerging economy (i.e. the USA and Turkey). Factors positively associated with financial reporting in the USA are assurance activities, control work, and competence; in Turkey, significant factors are governance work and competence. For governance, it is found that the factors positively associated with it in the USA include assurance activities, governance work, and competence; in Turkey, the significant factors are governance work and competence. In the USA, assurance activities are negatively associated with adding value, while consulting activities, risk work, and control work are positively associated with this measure. In Turkey, only risk work and control work are positively associated with adding value. Finally, several measures of IAF objectivity are not associated with any of the impact measures.

Nucleus accumbens single-unit activity in freely behaving male rats during approach to novel and non-novel estrus

To assess the role of nucleus accumbens (NAcc) during approach to novel sexually arousing stimuli, we evaluated NAcc single-unit activity in male rats during the presentation of vaginal estrus extracted from novel and familiar female rats. After control stimulus presentations, animals were exposed to two estrous presentations from a female in the same or separate colony. A significantly larger proportion of units increased firing rate in the novel (11/32; 34%) than the familiar condition (2/28; 7%) during approach to the first but not the second presentation. Response magnitudes to novel but not familiar estrus were also greater than those during control trials. Collectively, these results provide further evidence of a role for the NAcc in the processing of novel sexually arousing information.

Applying Basic Gamification Techniques to IT Compliance Training: Evidence from the Lab and Field

ABSTRACT: Companies depend on internal control to protect the integrity of information systems. IT security and data privacy training are critical controls for safeguarding company information. Employees often dislike the training, however, which can cause a lack of attention to, and poor understanding of, training concepts leading to less effective internal control. To improve the training experience, companies are implementing principles of games in employee training modules, a practice known as gamification. Utilizing a laboratory experiment on data privacy training and a field study involving IT security training for employees of a bank, we test whether a training environment with basic gamification elements results in greater trainee satisfaction and knowledge acquisition than traditional, non-gamified training. We find basic gamification results in higher satisfaction levels in the lab and field, but only marginally significant improvements in learning. Furthermore, these learning improvements are q...

Entrepreneurial Success: Differing Perceptions of Entrepreneurs and Venture Capitalists

The recent credit crisis has made it more difficult for entrepreneurs to find funding. It is increasingly important for entrepreneurs to know what is important to venture capitalists (VCs) when they make their funding decisions. The authors interviewed entrepreneurs and VCs to determine the traits these groups perceive as necessary for entrepreneurial success. They find that entrepreneurs cite traits inherent in their nature significantly more than VCs. Additionally, entrepreneurs who do not have previous VC funding experience differ significantly from VCs in identifying important factors for VC funding. In contrast, entrepreneurs with previous VC funding experience do not differ from VCs in identifying important funding decision factors.

Compensation or Feedback: Motivating Performance in Multidimensional Tasks

Employees often perform tasks with multiple dimensions. In this study, we examine how employees’ performance on multidimensional tasks differs under different control structures. We conduct two experiments in which we manipulate the presence of compensation controls and the presence of feedback controls on multiple task dimensions. Our findings suggest that when employees are compensated on multiple dimensions they commit to multiple goals and divide their attention among those task dimensions. However, when feedback controls are implemented on one task dimension with compensation controls on another dimension, employees can improve performance on individual dimensions as well as their overall task performance. As a result, we find that employee performance on a multidimensional task can be higher when firms compensate employees on one task dimension and provide feedback on the other task dimension than when firms compensate on both task dimensions. This study highlights the benefits of complementing compensation-based controls (i.e., incentive pay) with non-compensation based controls (e.g., feedback), and provides a theoretical basis to help explain the prevalence of this approach in practice.