After corporate scandals of Tyco, Enron, and WorldCom, public trust in firms operation such as accounting and reporting practices have decreased. To respond to this event, U.S. passed the Sarbanes Oxley Act (SOX) in 2002 to improve corporate governance of the firms (Sueyoshi, Shang and Chiang, 2008). The effective corporate governance helps ensure that manager of the firm works appropriately in order to protect shareholders rights and welfare (Gramling et al., 2004). Internal audit function is one of the four cornerstones playing important role in effective corporate governance along with audit committee, executive management and external auditor (IIA, 2003). Accordingly, in order to achieve effective corporate governance to ensure the appropriate of their works, firms have to improve the effective and efficiency of their internal audit function by using internal audit innovation.
To gain effective and efficiency of internal audit function, internal audit innovation is necessary. In this study, Internal audit innovation refers to new or developed internal audit strategies and techniques that internal auditor used to conduct internal audit activities. There are many types of innovation, but in this study internal audit innovation consists of four types namely auditing integration, corporate risk evaluation, computer assisted audit technique, and control self-assessment. Accordingly, the results of internal audit activity come from innovation provide guidance, recommendations and value-added supports in order to help the firm success (Sueyoshi, Shang and Chiang, 2008) and improve stability of the firm.
Accordingly, high intern audit innovation use is likely to affect stability of the firm. The stability of the firm is one thing that is necessary and every firm needs though difficult to gain. Firms which have stableness mean they will survive in high competitive market both in the short term and the long term. In this study, firm stability is defined as capabilities of firm to sustain and grow in competitive market by having continuous purchasing order from old and new customer, to increase in new customer and market share and to have customer acceptance in capacity and quality of product and service. However, internal audit innovation cannot influence on firm stability directly but by the help of firms increase the reliability of financial report, improve the organization process and advance the effective of risk management, as a result, firm stability is enhanced.
The concept of internal audit has been long studied in variety issues. However, general topics of internal audit researches are based on context of corporate governance and agency theory or the agency problems diminishing. For example, prior researches provide evidence that internal audit quality has an effect to external audit fee and earning management (Prawitt, Sharp and Wood, 2008). The firms which internal auditors have more experience, independence and more time assisting the external auditor as a result will have a lower external audit fee and little abnormal accruals. In addition, in perspective of transaction cost economics (TCE), internal audit has usefulness for cost economizing by examining firm's internal control and providing the valuable information to manager in helping them to understand an operation and bringing about changes for further cost economizing (Spraakman, 1997).
According to literature reviews, there are some weak points in study of internal audit, there are few research studies on internal audit issue in Asia Pacific, especially it doesn't have research in context of Thailand (Cooper, Leung and Wong, 2006). Thus, it is the time to seriously consider the issue of internal audit. This study concentrates on this point and purposes one aspect of internal audit, namely, internal audit innovation, which is a strategy of internal audit function used to conduct internal audit activity, in the context of Thailand. The concept of internal audit innovation emphasizes on the ways that conduces to internal auditing success. It provides the new strategies or techniques that help increase efficiency and effectiveness of internal audit activity. Finally, it contributes to the efficiency and effectiveness of organization process that lead to business success, especially in the fast growing countries like Thailand. That is the origin of motivation for this study.
For the unconsidered perspective in prior studies, this study uses the resource based view of the firm (RBV) to study concept of internal audit by focusing on internal audit innovation which is treated as the firm-specific resources. It consists of the unique and prominent attributes of firm's resources that valuable, rare, inimitable, and non-substitutable. All firms need to acquire and preserve those resources that give the better firm performance, especially in long-run, and obtain the competitive advantage (Barney, 1991). As a result, firms which have more internal audit innovation will have more competitive advantage due to financial report reliability, organization process improvement and risk management effectiveness. And, hence, it will bring the firm sustainability in a long-run. Therefore, this study applies the resource based view of the firm (RBV) theory to explain why a certain firm is successful more than others.
With the assessing literature relationship between internal audit innovation, financial report reliability, organization process improvement, risk management effectiveness and firm stability are interesting here. The purpose of this study is three-fold. The first one is to investigate the internal audit innovation, strategies of internal audit function. The second is to study the contributions of internal audit innovation. The last is to examine the antecedence of internal audit innovation in Thai listed firm. The primary research questions of this study are to uncover the relationship between internal audit innovation and firm stability via financial report reliability, organization process improvement and risk management effectiveness as mediator. Also, the specific questions are (1) how does internal audit innovation relate to financial report reliability, organization process improvement and risk management effectiveness?, (2) how do financial report reliability, organization process improvement and risk management effectiveness mediate the relationship between internal audit innovation and firm stability?, (3) how do employee competency for operation, proactiveness strategy and competitive learning have an influence on internal audit innovation?, and (4) how does change awareness moderate the effect on employee competency for operation, proactiveness strategy and competitive learning on internal audit innovation?
The structure of the paper is outlined as follows. Section 2 provides the theoretical framework. Literature reviews and hypothesis development are presented in section 3. Section 4 describes the research design, sample and procedure, and variable measurement of each construct n the study. Section 5 shows the results and the reasonable discussion. Section 6 indicates the contributions of this study and suggestion for future research. The conclusion is presented in the last section.
2.1 Resource-Based View of the Firm (RBV)
The resource-based view of the firm focuses on the firm's bundle of valuable resources helps transform a shot-run competitive advantage into a sustained competitive advantage. The valuable resources have to be heterogeneity in nature and not perfectly mobile (Penrose, 1959; Barney, 1991). A sustainable competitive advantage of the firm is reached through unique resources which have the characteristic of being rare, valuable, inimitable, and non substitutable. It means the resources which firm hold must not be easily bought, transferred, copied and concurrently they add value to a firm as being rare (Barney, 1991). Firm resources can be classified in to resource and capabilities (Day, 1994). They are core of competitive advantage of the firms (Grant, 1991). Resources can be separated into tangible assets and intangible assets such as financial, technology, knowledge and human capital while capabilities are firm specific and used to utilize the assets within the firm such as implicit process to transfer knowledge within firm (Maijoor and Wittleloostuijn, 1996; Makadok, 2001). As a result, the firm tries to use valuable, heterogeneous, rare and inimitable resource in order to improve and create sustain competitive advantage of the firm through capabilities (Capron and Hulland, 1999).
An important firm resource is its internal audit innovation. Internal audit innovation reflects the firm's philosophy of how to conduct internal auditing through a deeply rooted set of values and beliefs that guide the firm's attempt to achieve superior performance. In this study, the focus is on four important types of internal audit innovation, namely, risk based auditing, integrated auditing, analytical auditing and control self-assessment. The used of internal audit innovation can help firm transform a short run competitive advantage into a sustained competitive advantage by increase reliability of financial report, improve work process in the firm and rise the effectiveness of risk management. As a result, the firm can maintain stability in the high competitive market.
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LITERATUR REVIEW AND HYPOTHESES DEVELOPMENT
3.1 Internal Audit Innovation
According to Institute of Internal Auditors, internal auditing refer to the activities that used to add value of the firm and improve organization's operations (IIA, 2009). In addition, Innovation is defined as the generation and/or acceptance of ideas, processes, products, or services that the relevant adopting unit perceives as new (Garcia and Calantone, 2002). The innovation consists of two types named as incremental and...
Internal audit innovation and firm stability of Thai listed company: how do implement in an organization?
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