Does talent acquisition problem exist in internal auditing?

March 22, 2016

Internal auditing serves important functions in organizations. However, internal audit positions may not attract top quality job candidates. This article discusses a recent study aimed at understanding perceptions of external auditors on internal auditing.

1. Does talent acquisition problem exist in internal auditing?

Internal auditing serves important functions in organizations.  However, internal audit positions may not attract top quality job candidates.  This article discusses a recent study aimed at understanding perceptions of external auditors on internal auditing.

1) External auditors’ negative perception of internal auditing

Internal auditing is an important function in organizations.  This function helps increase the quality of corporate governance and risk management.  Because of these responsibilities, it is vital to attract top talent to internal auditing.  However, it appears that organizations may have a hard time doing so.

The question of getting more high-quality job candidates into internal auditing has been raised on multiple occasions.  One of the recent studies aimed at understanding this issue is called “Attracting Applicants for In-House and Outsourced Internal Audit Positions: Views from External Auditors” Accounting Horizons 2016.  The authors of the study performed two experiments where they engaged auditors of a large national U.S. auditing firm.  The reason for conducting these experiments with external auditors is due to the influence external auditors have on school graduates about choosing a career path after graduation.  So, by evaluating experiment results based on answers from external auditors, the study’s authors assessed the external auditor influence factor in choosing internal auditing as a career choice for graduates.

For the first experiment, after elimination of unacceptable experiment results (some respondents didn’t pass manipulation check questions), results from the remaining 93 auditors (from 34 different offices) were evaluated.  The auditors were primarily senior auditors or staff.

For the second experiment, answers of 39 auditors were included in the study.  This time, more experienced auditors (e.g., managers, directors) were asked to answer experiment questions.

On a personal note, even though this study may fulfil statistical requirements, its results might not be generalizable.  Only one large firm was involved in the study.  It is true that auditors from different offices were included (and as we know, different offices may have varying cultures even within the same firm – mostly driven by partners in the office), it is still only one firm’s culture.  Having more auditors from other firms would have provided a more generalizable conclusion; but of course there may be limitations as to how many auditors or auditing firms are willing to participate in academic experiments.

Let’s move to the results of the experiments:

  1. External auditors (when they decide to leave public accounting) are significantly more likely to apply to accounting positions than internal audit positions.  In fact, more than twice as many external auditors are willing to apply for accounting positions than internal audit positions.
  2. Study participants agree that there is negative perception of internal audit positions and disagree that internal auditors are respected by other business professionals or that internal auditors perform interesting work.
  3. Study participants are more likely to recommend a top student go into external audit than internal audit; participants also recommend that only mediocre students go into internal auditing.

These results support the authors’ hypotheses that external auditors may have a negative perception of internal auditing.  Since external auditors may influence job decision making of graduating accounting students (i.e., applicant pool to external vs internal auditing positions), it is important to consider these results.  On the side note, it is fair to mention that some companies already consider these factors and take action to reduce their impact on talent acquisition in internal auditing.

2. Suggestions to attract more high-quality job candidates

Study participants provided some recommendations about ways to increase attractiveness of internal audit positions.  Such recommendations are summarized as follows:

  1. Less mundane internal control work
  2. More respect in company
  3. Add more value to company
  4. Better pay
  5. Better career progression
  6. More understanding of career
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