Academic journal article Journal of Managerial Issues

From Bean Counter to Business Partner-Internal Audit: The New Source of Executive Leadership

Academic journal article Journal of Managerial Issues

From Bean Counter to Business Partner-Internal Audit: The New Source of Executive Leadership

Article excerpt

Since the demands of a global marketplace are constandy changing at an unprecedented pace, businesses have to be reflexive in their response to the dynamic changes taking place in the environment very quickly. As such, the stimuli in the environment often trigger organizational changes in response to socio-political events, new technology and regulation; therefore, these changes can often prompt organizations to alter their structures, processes, and strategies accordingly (Haveman et al., 2001; Miles et al., 1978). As a result, many firms have responded to these environmental changes by implementing a major management accounting change (e.g., shifting the roles and responsibilities of key organizational actors such as internal auditors and management accountants) to help the business meet and/or exceed its goals and objectives. Today, more than ever, management accountants and internal auditors are being called upon to deliver more value to their organizations beyond the status quo.

This study addresses the following research question, "How does the changing role of the internal audit function create a new source of executive leadership for the organization?"

Many organizations have benefitted significantly from the internal audit function (IAF) taking the lead in driving the corporate governance effort. Because of that success, many new consulting and other special projects have come about that allowed the IAF to expand its role beyond traditional boundaries (Morgan, 1980; Roussy, 2015; Sarens and De Beelde, 2006; Verschoor, 2005).

Past studies have concentrated their focus on management accounting changes from a macro view of the organization (Burns and Baldvinsdottir, 2005; Quattrone and Hopper, 2001; Sulaiman and Mitchell, 2005), but the coverage of studies that focus primarily on changes taking place inside the organization is parsimonious at best. Prior research suggests that processual studies have been effective for distilling the properties of change over a period of time as well as unearthing new trends of behavior within the organization (Burns and Scapens, 2000). Likewise, Burns and Scapens (2000) established a precedent of evaluating management accounting changes as a fluid process by leveraging the Old Institutional Economics (OIE) portion of institutional theory (Ribeiro and Scapens, 2006). Similarly, this study explains the social phenomenon of the internal audit function being used as a source of executive talent. Further, this practice is couched in terms of a management accounting change using the data obtained from interviews conducted with chief audit executives (CAEs) in eight organizations.

This study contributes to the literature in three ways. First, it shows how the internal audit function can address the conflict that arises or may arise from assuming the dual role of business consultant and assurance provider. Secondly, it provides a blueprint for addressing organizational change by removing ineffective business practices and institutionalizing new business practices and routines as a management accounting innovation. Lastly, it illustrates how the combination of risk management expertise, acute knowledge of processes along with a strong business orientation makes the internal audit function a key source of executive talent.

To adequately explore how the role of management accountants and internal auditors has shifted, it is essential to define both terms. According to Atkinson et al. (2004):

"A management accountant supports and advises the management of an organization in realizing their economic, public and/or financial goals. Support is interpreted in terms of the design and maintenance of management control and accounting information systems, and the procurement and distribution of information" (Verstegen et al., 2007: 11).

The Institute of Internal Auditors (IIA) defines the practice of internal auditing as: "An independent, objective assurance and consulting activity designed to add value and improve an organization's operations. …

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