Dessalegn Getie Mihret

Internal audit effectiveness: an Ethiopian public sector case study

Purpose - The purpose of the study is to identify factors impacting the effectiveness of internal audit services. Design/methodology/approach - Based upon a case study of a large public sector higher educational institution in Ethiopia, the paper examines how internal audit quality, management support, organizational setting, auditee attributes, and the interplay among these factors, influence internal audit effectiveness. Findings - The findings of the study highlight that internal audit effectiveness is strongly influenced by internal audit quality and management support, whereas organizational setting and auditee attributes do not have a strong impact on audit effectiveness. Research limitation/implications - As in all case studies, the generalisability of the conclusions is limited. Originality/value - Internal audit services have apparently hitherto been the subject of limited examination. However, this study, in arguably the most thorough treatment so far, highlights the areas requiring improvement.

Value‐added role of internal audit: an Ethiopian case study

Purpose - The purpose of this paper is to draw inferences – from the results of an Ethiopian public sector corporation (for-profit) case study – on how the attributes of a value-adding internal audit department would vary among organisations. Design/methodology/approach - The case study strategy is employed. The internal audit function of a public sector corporation was examined using an analytical framework derived from the literature. Research evidence was gathered distributing questionnaires to managers and internal auditors, conducting a semi-structured interview with the internal audit department manager, and reviewing documents. Findings - The results highlight that traditional/compliance audit is dominant in the organisation studied as contrasted with value-added auditing. The paper concludes that goals and strategies pursued and the level of risk faced by organisations to which internal audit provides service, appear to shape the attributes of a value-adding internal audit department. The study also demonstrates that the quality of strategic planning for, and marketing of, internal audit would influence the extent to which an appropriate value-added profile is attained in a particular context. Research limitations/implications - Since a single unit of analysis is examined, universal generalisability of the findings cannot be claimed. Also, the research design assumed that the unit of analysis investigated falls within the scope of internal audit departments considered in the literature that served as a basis to develop the analytical framework and data collection instruments. Originality/value - The paper is expected to inspire conclusive follow-on research on the role of internal audit in Ethiopia, or other countries with similar settings.

Antecedents and organisational performance implications of internal audit effectiveness: Some propositions and research agenda

– The purpose of this paper is to synthesize relevant theoretical and empirical literature to develop propositions and suggest a research agenda on the antecedents and organisational performance implications of internal audit effectiveness., – The paper employs institutional theory and Karl Marxs theory of the “circuit of industrial capital” to synthesize relevant internal audit literature to develop theoretically justifiable propositions and highlight an operational research agenda., – Propositions and a research agenda are provided on potential antecedents of internal audit effectiveness and its possible association with company performance measured as rate of return on capital employed. Also, key variables are identified and operationalisation issues discussed., – As the extant literature does not provide a canon of internal audit effectiveness, the papers originality is its argument that a positive association between compliance with standards for the professional practice of internal auditors and organisational goal achievement could serve as an approach to assess internal audit effectiveness. Furthermore, the use of the two theories in combination provides additional insights into identifying the antecedents of internal audit effectiveness and its measurement.

Accounting professionalization amidst alternating state ideology in Ethiopia

Purpose - This study aims to examine accounting professionalization in Ethiopia focusing on how the state, occupational group struggle and transnational accountancy bodies influence the realization of closure. Design/methodology/approach - A qualitative research approach is employed. Data were collected using document review and oral history approaches. Findings - Accounting professionalization in Ethiopia was initiated by the state to strengthen the countrys financial system. Owing to a change of state ideology to communism in 1974, a strategy of developing accounting professionals as government-employed experts was pursued. The return to a market-oriented economy in 1991 has seen a trend towards a more autonomous accountancy profession. Inflow of UK capital in the early twentieth century and activities of the UK-based Association of Chartered Certified Accountants (ACCA) in recent decades have influenced Ethiopias accountancy. Its professional and financial power has enabled ACCA to make arrangements with Ethiopian Professional Association of Accountants and Auditors (EPAAA) and consolidate its position in Ethiopias accountancy by controlling EPAAAs member training and certification. Originality/value - The literature on accounting professional projects in developing countries has focused on imperialistic influence in former British colonies. The present study extends this literature by illustrating how British influence has continued to extend beyond Britains former colonial possessions. This enables an understanding of the dynamics of accounting professional projects in the developing world with analytical dimensions building on the hitherto dominant lens of “formal” colonial connection.

Corporate political connections, agency costs and audit quality

Purpose The effect of political connections of agency costs has attracted considerable research attention due to the increasing recognition of the fact that political connection influences corporate decisions and outcomes. This paper aims to explore the association between corporate political connections and agency cost and examine whether audit quality moderates this association. Design/methodology/approach A data set of Bangladeshi listed non-financial companies is used. A usable sample of 968 firm-year observations was drawn for the period from 2005 to 2013. Asset utilisation ratio, the interaction of Tobin’s Q and free cash flow and expense ratio are used as alternative proxies for agency costs; membership to Big 4 audit firms or local associates of Big 4 firms is used as a proxy for audit quality. Findings Results show that politically connected firms exhibit higher agency costs than their unconnected counterparts, and audit quality moderates the relationship between political connection and agency costs. The results of this paper suggest the importance of audit quality to mitigate agency problem in an emerging economic setting. Research limitations/implications The findings of this paper could be of interest to regulators wishing to focus regulatory effort on significant issues influencing stock market efficiency. The findings could also inform auditors in directing audit effort through a more complete assessment of risk and determining reasonable levels of audit fees. Finally, results could inform financial statement users to direct investments to firms with lower agency costs. Originality/value To the knowledge of the authors, this study is one of the first to explore the relationship between political connection and agency costs, and the moderating effect of audit quality of this relationship.

The role of internal auditing in corporate governance: a Foucauldian analysis

Purpose - This study attempts to articulate the conceptual foundations of the role of internal auditing in corporate governance by drawing on Michel Foucault’s concept of governmentality. Design/methodology/approach - The paper is a literature-based analysis of the role of internal auditing from a Foucauldian perspective. Findings - It is argued that Foucault’s notion of governmentality provides conceptual tools for researching internal auditing as a disciplinary mechanism in the corporate governance setting of contemporary organizations. The paper develops an initial conceptual formulation of internal auditing as (a) ex post assurance about the execution of economic activities within management’s preconceived frameworks and (b) ex ante advisory services to enhance the rationality of economic activities and accompanying controls. Research limitations/implications - The paper is expected to initiate debate on the choice of theory and method in internal auditing research. The propositions and research agenda discussed can be used to address research questions of an interpretive nature that could enrich our current understanding of internal auditing. Originality/value - This paper extends the Foucauldian analysis of accounting to incorporate internal auditing. It offers original propositions as a research agenda and discusses ontological and epistemic considerations associated with adopting the Foucauldian framework for internal auditing research.

National culture and fraud risk: exploratory evidence

Purpose - – The purpose of this paper is to test the association between national culture dimensions and exposure to fraud with a view to drawing implications for understanding fraud risk. Design/methodology/approach - – The study is based on a sample of 66 countries. Regression analysis is conducted using Hofstede’s national culture dimensions as independent variables and fraud risk as a dependent variable. Transparency International’s corruption index was used as a proxy for fraud risk. Findings - – Results suggest high fraud risk exposure in countries with high power distance and those having limited long-term orientations. Research limitations/implications - – The study informs deeper understanding of fraud risk through analysis of fraud risk in a culturally relative sense. Originality/value - – This is the first study (known to the author) to draw the implications of national culture for understanding fraud risk.

Multiple informal imperial connections and the transfer of accountancy to Ethiopia (1905 to 2011)

The accounting history literature expounds the role of imperial connection on the transfer of Western accountancy concepts and practices to developing countries. An emerging theme within this literature is the shift in imperial power from Britain to USA over the last century and the ramifications of this shift on accountancy globally. Using a framework developed by prior research for investigating the transfer of accountancy across countries, this study examines historical developments of accounting practice, education and professional training in Ethiopia (from 1905 to 2011) in the light of the country’s interactions with Britain and the USA. These interactions facilitated Ethiopia’s continued importation of British accountancy practice and professional training contemporaneously with importation of accounting education from the USA. Over the past two decades, Ethiopia has been undertaking accounting reforms as part of economic policy reforms in pursuit of neo-liberal economic ideals. In response to shifting priorities of transnational actors, Ethiopia continued trialling policy initiatives that are yet to yield a stable equilibrium with coherent links of accounting education, practice and professional training.

The development of internal auditing in Ethiopia: the role of institutional norms

Purpose - The purpose of this paper is to examine the extent to which institutional norms determine attributes of internal audit practices and how institutional changes explain the development of these practices. Design/methodology/approach - The authors employed a qualitative research approach based on archival analysis and interview evidence. Findings - Findings indicate that regulation-based institutional norms explain the adoption of internal audit and the functions characteristics in Ethiopian organizations. Furthermore, innovative introduction of internal audit practices originate within individual organizations and eventually get institutionalized through diffusion. Such innovations are associated with organizational size, top management characteristics, internal audit advancement in technology, and exogenous input from the external environment. Widely accepted internal audit practices, as institutional norms, are not always taken-for-granted at the level of individual organizations. The institutional change perspective enables explaining how new internal audit approaches are introduced to supplant old ones. Originality/value - This study theorizes the development of internal audit practices from an institutional change perspective. Being the first study to do so, it contributes to the understanding of key drivers of institutional change that initiate new institutional norms that foster the development of internal audit through introduction and diffusion of new audit practices as old ones are deinstitutionalized.

Business group affiliation, earnings management and audit quality: evidence from Bangladesh

Purpose - This study investigates the moderating role of audit quality on the association between business group affiliation of firms and earnings management in the South Asian emerging economy of Bangladesh. Design/methodology/approach - A usable sample of 917 firm-year observations was drawn from companies listed on the Dhaka Stock Exchange from 2005 to 2013. Data were collected from the annual reports of sample companies. Earnings management was measured using the absolute value of discretionary accruals and two proxies were employed to measure audit quality: auditor size and industry specialisation. Findings - Our results show that the level of discretionary accruals is positively associated with business group affiliation status, and higher audit quality reduces this association. This suggests that in environments without strong investor protection, complex ownership structures create opportunities for controlling shareholders to expropriate minority shareholders. The controlling shareholders could then mask this practice through earnings management. The findings also show that in environments lacking strong investor protection, audit quality can help improve earnings quality for group-affiliated firms. Practical implications - The results suggest that financial statement users need to consider audit quality for a reasonable evaluation of the earnings quality of business groups. The study also informs regulators by illuminating audit quality as a key area of focus in any effort directed at enhancing stock market efficiency through improved earnings quality in environments where business group affiliation is prevalent. Originality/value - This study documents empirical evidence on the moderating effect of audit quality on the positive association between business group affiliation and earnings management.