Matthew Starliper and Dr. David Wood, School of Accountancy
A critical component of high quality corporate governance is attracting well-qualified job candidates into the internal audit function (IAF). Yet, IAFs face significant challenges in hiring a sufficient number of qualified professionals to perform their worki. Given this challenge, it is important to understand factors that can affect the ability of the IAF to attract a large pool of talent2. Therefore, the purpose of this research was to investigate three specific questions: (1) To what extent are job applicants deterred by negative stereotypes of working in internal auditing?; (2) How do different job structure factors, namely using the IAF as a management training ground and/or using the IAF to perform consulting versus assurance work, affect the desirability of internal audit positions?; and (3) How do these job structure factors influence the quality of job candidates attracted to work in the IAF?
The specific factors we investigate have important ramifications for the development of the internal auditing profession. Internal auditing has significant latitude in the type of work it performs and recently has vacillated between providing more assurance services versus consulting services3. Understanding if the nature of the work the IAF performs is attractive to high quality individuals is important for developing a respected and desirable profession. In addition to the type of work internal audit performs, a significant number of companies use the IAF as a management training ground (MTG)—rotating employees, either new or experienced, into the IAF for a short stint before placing them into management positions.
To motivate our examination, we turn to the theory of vocational personalities and work environments4. This theory suggests that individuals are attracted to work in an occupation when their own self-image matches their perceptions of the occupation. Thus, perceptions of the internal audit occupation from a job applicant’s position are important. We argue that these perceptions will cause individuals to be less likely to apply to positions in internal auditing when it is used primarily to perform assurance work. However, we also argue that IAFs that indicate that they perform consulting work will be able to attract more individuals than those that do not. Further, we expect that these consulting-oriented IAFs, which are also organized as MTGs, will benefit even more as the MTG practice likely enforces the idea that job applicants are applying to management positions that only require a short stint in internal auditing to enhance their knowledge and understanding of the company.
To test these expectations, we conducted a 2 x 2 +1 between-subjects experiment. We asked students close to graduation to read a job description and decide their interest in and willingness to apply for the advertised job. We manipulated whether the internal auditors will perform primarily assurance or consulting work and whether the internal auditors are promoted within the IAF or into positions outside of the IAF. We also tested whether there was a negative perception
against working in internal auditing by manipulating whether the job description labels the position as an internal auditing position or an accounting position (this is the +1 condition).
Responses from 169 students show that participants have significant concerns over applying for internal auditing positions. For participants who had some business experience, 33 percent fewer participants would apply for a job described as internal auditing than a job described as accounting. For participants with no business experience, there was no difference in willingness to apply for the job based on the internal audit or accounting job titles—which suggests that experience in the business profession is driving the results and not university-specific training. Furthermore, we find that both the type of work performed (assurance vs. consulting) and the promotion practices of the IAF (MTG or not) interact in influencing participants willingness to apply for an internal audit position. The results suggest that participants are most interested in applying to work in internal auditing when the IAF both performs consulting work and it is used as a MTG. Finally, as an exploratory analysis, we find that the individuals attracted to the IAF when it performs primarily consulting work and is not used as a MTG have lower grade point averages, which may indicate that this combination may appeal to a lower quality applicant pool.
The results suggest that the profession of internal auditing faces a challenge in attracting talent. Job applicants’ perceptions of the profession gathered through work experience deter applicants from applying to internal audit positions even when they are interested in the job based on the description of the work they will perform. Furthermore, the only conditions that improved job candidates’ willingness to apply to the IAF is when the job candidates both expected to spend little time in internal auditing before moving into positions outside of the IAF and the IAF performed primarily consulting tasks—a deviation from the traditional internal audit role of performing primarily assurance services. Internal audit standard setters and other gatekeepers of the profession will likely find these results troubling, but hopefully helpful as they chart the course for improving the reputation of the internal auditing profession and attracting talent.
These results also speak to the larger business community who are concerned with high quality corporate governance. If the IAF cannot attract high quality applicants, its ability to serve as an effective cornerstone of high quality corporate governance will likely be compromised.
This paper was presented to accounting faculty and Ph.D. students by Matthew Starliper at the BYU Accounting Research Symposium in September 2012. We would like to thank Professors Scott Summers and F. Greg Burton for their help as coauthors on the paper, and we would like to thank other friends that have reviewed and offered suggestions for the paper.
References
- PricewaterhouseCoopers (PwC). 2012. Aligning internal audit, are you on the right floor? 2012 State of the internal audit profession study. PriceWaterhouseCoopers LLP. Retrieved from: http://download.pwc.com/ie/pubs/2012_ aligning_internal_audit_are _you_on_the_right_floor.pdf.
- The Institute of Internal Auditors (IIA). 2011. Recruitment Strategies For Tomorrow’s Internal Audit Function. Audit Executive Center. The Institute of Internal Auditors. Retrieved from: http://www.iai.es/upload/doc/Recruitment%20Strategies.pdf.
- Hass, S., M. J. Abdolmohammadi, and P. Burnaby. 2006. The Americas literature review on internal auditing. Managerial Auditing Journal 28(8): 835-844.
- Holland, J. 1997. Making Vocational Choices: A Theory of Vocational Personalities and Work Environments (3rd ed). Odessa, FL: Psychological Assessment Resources, Inc.