13-15 April 2011, Cass Business School

 

The annual three day event that is the European Academic Conference on Internal Audit and Corporate Governance is now in its ninth year and was hosted on this occasion by Cass Business School, London. Cass is one of the founding institutes of the conference, together with universities from Italy, the Netherlands and Belgium. The conference aims to bring together students, professional academics and practitioners in the field of governance, assurance, risk, audit and compliance to share ideas, disseminate research, provide robust and stimulating feedback on each other’s work and network with like-minded people. Although nominally a European affair its delegates and presenters hailed not just from Europe but from as far afield as India, the United States and Malaysia.

 

The first day focused on PhD research in progress. Five papers had been selected, showcasing a wide range of topics in a variety of stages of completeness, from the earliest point of determining the particular focus of the chosen thesis through to final write up and submission. The students were invited to present their studies and explain their objectives, methods adopted, findings and conclusions, typically speaking for around 45 minutes. This was followed in each case by discussions where those in attendance – mainly other students and professional academics – had the opportunity to seek clarification, to offer suggestions for improving the research or to challenge assumptions made. These were offered in a friendly and constructive environment.

 

Nilashis Ghosh of Liverpool University outlined his planned research into the cultural impact on ethical decision-making among internal auditors in India, with particular focus on educational establishments. Nicola Rimmer (Oxford Brookes University), also in the very early phase of her studies, described her interests in revealing more about the distinctive added value that internal audit brings. Dieter De Smet of the Public Research Centre in Belgium discussed the importance of internal audit to corporate governance and in particular the degree of collaboration between internal and external audit. Ruth Massie (Cass Business School) shared her research into the relationships between non-financial performance measures (such as customer satisfaction) and corporate governance structures. Diane van Gils (Louvain University, Belgium) explained how she has been investigating what the determinants are of internal audit activity, namely the factors that determine its shape, composition, focus and so on.

 

The main section of the conference – days two and three – was opened by a presentation from Steve Haberman, the Director and Deputy Dean of Cass Business School. He emphasised the need for academic research to deal with the issues that are of importance to the profession, and in so doing to link theory and practice. He also went on to stress the importance of ethics to business in the present day environment, following the recent financial crisis.

 

Over the next two days many different topics were covered, many of which are described below.

 

Janicke Ramussen’s studies have revealed that board evaluations in Norway rarely have any clear, common purpose shared by the board members. They are often implemented without much prior discussion and with little or no impact on future activity. There is a strong tendency for boards to evaluate themselves or be evaluated as a whole without assessing the relative strengths of individuals. Not too surprisingly boards commonly report that they are very happy with their own performance.

 

Andreas Koutoupis of the University of the Aegean in Athens is interested in the suitability of importing international governance codes into a particular national context, in his case Greece. Greek companies are able to adopt any national or international code or devise their own rules. In addition they must comply with national laws. He plans to use a number of case studies to gauge how well frameworks from other environments work when they have been transplanted, looking especially at King III and the UK Corporate Governance Code.

 

Marika Arena of Milan Polytechnic has been investigating what makes internal audit effectiveness in the view of internal auditors. Her study shows that there is quite a lot of heterogeneity regarding the possible marks of effectiveness, including internal audit’ contribution to:

 

The studies of Gert van der Pilj (Erasmus Business School, the Netherlands) into risk attitude, using decision theory and prospect theory, show that there are differences in risk attitude when completing risk maps compared with the process of decision making. Risk maps tend to be built on an assumption that there are linear relationships between levels of risk and their acceptability. However, in making individual business decisions managers will take into account not just risk but also utility (or the potential gain). This skews their appetite and tends for disproportionately greater risk taking for greater potential gain than a simple linear relationship would suggest.

 

Taking a related theme, van Pilj’s colleague at Erasmus, Arno Nuijten, has been studying the perceived ‘deaf response’ to risk warnings. In the same way that health warnings on cigarette packets seem to have the reverse of their intended impact (leading to an increase in smoking), so the soundings of internal auditors can also have limited effectiveness in trying to get managers to manage risks more effectively. A host of factors (psychological, sociological, organisational and cultural) cloud the ability to make logical decisions about risk. One feature examined in this study is the extent to which it is difficult to pull back from projects, despite a failure to deliver and steadily increasing costs.

 

In focusing on the contribution of internal auditing to sustainability in emerging countries, Jeff Ridley and Ken D’Silva (London South Bank University) are exploring an under-regarded area of research. They have started by examining a number of important global statements on sustainability (from the World Business Council, the UN and the EC). Given the emphasis placed by organisations on sustainability, corporate social responsibility and the triple bottom line, there is surprisingly little attention given to assurance of these. Arguably there is scarcely a bigger area of risk than that of sustainability.

 

A very provocative and thought-provoking paper was presented by Rainer Lenz from Louvain University in Belgium, exploring where internal audit might have gone wrong. He began by asking why internal audit has not been seen to have a role in the financial crisis, neither as part of the problem nor as part of the solution. He argued that it is because internal audit has no one clear boss and no single clear role. It tries to be many things to many people to the point where no-one is really sure who it is for and what it delivers. This is not helped as internal audit functions typically do not demonstrate their value very clearly and are not their own best advocates. He argued for a consolidation of internal audit around its core function of providing assurance.

 

Other papers included the following themes:

In addition a presentation was made by Marie-Helene Laimay from the ECIIA in which she highlighted research opportunities for which the ECIIA will be awarding prizes to stimulate and reward work in these areas.