External and Internal Auditors Perceptions on Compliance with Internal Audit Standards and Practices : Spirit vs letters?

This paper investigates differences between the external auditors’ (EA) and the internal auditors’ (IA) perceptions of the degree of usage and compliance with the Institute of Internal Auditors (IIA) International Standards for the Professional Practices of Internal Auditing (Standards) by internal audit departments. The research uses survey-based questionnaires sent to IAs and EAs of the listed firms registered in an emerging market and included interviews with individuals involved in the internal auditing function (IAF) and EAs. The survey analyzes issues relating to IAF compliance with IIA standards summarized in the Common Body of Knowledge Database (CBOK). Social identity and stakeholders’ theories are used to explain the development of the research hypotheses in relation to IAF. The research indicates that the rates of conformance for the selected individual standards vary significantly among respondents. The findings provide evidence that there are low levels of interactions between IAs and EAs in emerging markets. This study is considered among the first that surveys the status of the use of the professional IIA standards in listed firms in an emerging economy. It also investigates the importance of ensuring that the “spirit” of the IIA standards is adhered to rather than the mere compliance with their “letters”. The paper emphasizes the gap still existing in practice between IAs and EAs in relation to their interactions, communication, and cooperation to enhance the quality of the IAF activities and related financial reporting. The research study relied on a sample of companies to investigate the level of compliance with IIAs standards and selected a limited number of the IIA standards for usage and compliance assessments