내부 감사와 이익조정과의 관계에 대한 연구 - 공기업 상임감사 직무수행 실적평가를 중심으로

Abstract

Institute of Internal Auditors (IIA) prescribe that internal audit is useful to assess the adequacy of the internal control in order to perform efficiently administrative tasks within the companies. It implies that internal audit has a important role as a risk managements and not just discover irrationality and fraud. This allows us to prevent accounting fraud, management checks, improvement of performance. In this circumstances, the importance of the internal audit is growing. However, there are several papers for internal audit of private companies, because there are limitations to use the evaluation reports of internal audit for private companies. However, we are possible to use the evaluation reports of internal audit for public companies. Under the reports of “performance evaluation of internal audit”, which has been implemented since 2007, it is possible to examine the impact of internal audit quality on earnings managements. According to the rules, the assessors provide the evaluation results for performance and the degree of efforts for public corporation in each year. In order to evaluate the performance results of internal audit, the assessors consists of professors, certified public accountants, experts from various fields, and so on. Their evaluation of internal audit is treated as a quantitative indicators and the evaluation processes include following 7 contents: 1) ensuring professionalism, ethics, and independence of audit; 2) strengthen internal controls; 3) operational performance and follow-up management of internal audit; 4) prevention activities and recurrence prevention of careless management; 5) audit activities and follow-up management of management guidelines; 6) commitment for transparency and ethics; 7) agency evaluation of management. As the evaluation results of internal audit, the assessors assign the scores between 6 to 9 in each year. In this paper, we examine the performance results of internal audit on earnings managements. In specific, this paper explore whether the internal audit quality affect earnings managements during sample period by using objective and quantitative performance evaluation data for public companies. In this regards, we use the quantitative evaluation data for public corporations. We solely focus on the results of “performance evaluation of internal audit” and public corporations for two reasons. First, it is the most quantitative data based on “Article 36 of Law on the Management of Public Organizations”, and thus offers the greatest power for our tests. While prior papers test the effect of internal audit through a survey or literature reviews. Also, we have a limitation to explore whether the assessment of internal audit affect the earnings managements’ behavior because of the evaluation results of internal audit quality have been regarded as an important corporate confidential or is not allowed to use. Second, public companies might be treated as instruments of public policy, and thus the public companies have the different characteristics from private companies. Fewer studies examine the effect of internal audit for private or public companies through the survey or literature reviews. For example, Yoo (2009) examines the effect of internal audit that is one of the corporate governments on management performances. Douglas et al. (2009) provide the empirical results by using Institute of Internal Auditors (IIA)’s internal audit data. They find that experience of auditors, education, and training are negatively affect the earnings managements. The recent paper (Jeong et al. 2013) show the positive relation between earnings managements and management performances for public companies. Although there are several papers for weaker results, the results of whether the data of “Article 36 of Law on the Management of Public Organizations” mitigates the behaviors of earnings managements for public companies has not been previously documented. To examine whether earnings managements behavior are more affected by higher internal audit quality or not. We construct IAS_D using evaluation results that could impact firm’s ability to manage their earnings from the reports of “performance evaluation of internal audit”. Our sample is comprised of 120 firms that reported the results of quality of internal audit from 2008 to 2013 only for public companies. In this study, we expect that the assessment of internal audit quality ultimately improve the quality of internal audit by ensuring accountability of the audit organization and bringing the activation of internal containment system. We find the higher internal audit quality might reduce behavior of earnings managements for public corporations. The results indicate that the introduction of performance evaluation results of internal audit quality may provide the improving accounting transparency. In addition, it brings the activation of internal containment system and responsibility indirectly by implementing performance evaluation of internal audit. This paper provide the insight the role of internal audit for public corporations with taking performance evaluation of internal audit after 2007, while we have the lack of prior papers that examine the impact of the evaluation data. Therefore, we provide the improved understanding of internal audit quality for related authorities to operate performance evaluation of internal audit.