INTERNAL AUDITING IN ITALY – A MULTIPLE CASE STUDY

Abstract

The importance of internal audit function for an organization is difficult to explain given that there is no one best way to define it. In fact, internal audit function is not always considered as a pillar of organizational governance and legitimacy; nevertheless, the importance of the internal audit is stressed by the fact that stakeholders perceive an organization as having legitimacy when the system of governance is effective. Legitimacy does not have a material substance, it is only a perception or a state of mind and, for this reason, it is not directly measurable. The measurable element of legitimacy is its effect, visible in the level of support stakeholders give to the organization. However, this dissertation does not link the performance of internal audit directly to legitimacy; it rather links the influence of the internal audit in the organizational system of governance. Internal audit is a support function, which is not directly involved in the provision of goods and services. The output of the audit process is information given in the form of reports and presentations making it difficult to identify the benefits derived from its activities. Therefore, the principal aim of this paper is to identify the effect of internal audit on the governance system, evaluating if it is relevant or not, perceivable by the players of the company or symbolic. The presence of an internal audit function can be viewed as the alignment of the values and norms of stakeholders. If the adoption of internal audit is considered as the right thing to do, more legitimacy is perceived. Internal audit is a monitoring and oversight mechanism to ensure the protection of the organization against failure to achieve strategic goals. The company could choose between internal or external audit: the use of external audit is possible because both internal and external audit focus on the same direction. In fact: external audit provides assurance on the reported information, while internal audit monitors the organizational systems for the production of reported information. The presence of the internal audit could be influenced by the dimension or the type of enterprise. As a form of control itself, the decision of whether or not to adopt an internal audit function depends on whether the benefits of adopting it exceeds its costs. This is consistent with the noted trend that big organizations are more likely to adopt internal audit than smaller organizations. The first chapter of this paper has the aim to provide an examination of the literature treating governance system issues and the role of the internal audit function within these systems. Therefore, the starting point is to consider how the performance of the internal audit function has been considered in the past by academics and practitioners. The second chapter attempts to understand the drivers that explain the adoption of the Internal Audit function within a company. The third chapter is devoted to describe the organization of the internal audit function within companies. The fourth chapter contains six case studies, in order to describe the characteristics of internal audit departments in six Italian companies with the focus of investigating the personal characteristics of internal auditors.