The relative effects of elements of internal control on auditors’ evaluations of internal control

Date of this Version


Document Type

Journal Article

Publication Details

O'Leary, Conor, Iselin, Errol and Sharma, Divesh (2006) The Relative Effects of Elements of Internal Auditors' Evaluations of Internal Control is published in the Pacific Accounting Review, Volume 18, Number 2, December 2006, pp. 68-96.
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2006 HERDC submission


Internal control evaluation is a critical component of the overall audit process, mandated by auditing standards worldwide. These standards divide internal control structures into a number of elements, summarised as the control environment, information systems, and control procedures. Significant research exists as to auditors’ evaluations of internal controls. However, little work appears to consider the elements’ inter-actions and relative significance. This study attempts to gauge the relative importance external auditors assign to the three elements. 94 practicing auditors evaluated internal control structures in two fictitious companies, one with strong internal control elements throughout, the other with one of the three set at a lower reliability level. The results indicate auditors consider control environment the most important element of internal control. The effect of weakening this element was that auditors assessed all three elements and overall evaluation as less reliable. Varying the other two elements did not have such significant effects. The findings carry ramifications for the auditing profession, particularly in drafting auditing standards on risk assessment. © 2006 Emerald Group Publishing Limited

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This document has been peer reviewed.