Effects of internal audit team on operational effectiveness of Thai listed companies.

Author:Wangcharoendate, Suwan

    Economics and technological trends are rapidly changing the structure of work in modern organization (Devine, Clayton, Philips, Dundord, & Melner, 1999; Risher, & Fay, 1995). Dividing labor into several specialized tasks to increase the efficiency between input and output has lost its attractiveness as employees often need to pool their resources together to adapt to the ever-changing business environment. For instance, Total Quality Management (TQM) in which team members are trained together and learn how to adapt to each other's role has proven to be more beneficial than previously used individualized work systems because the TQM ensures high quality outcomes through teamwork processes (Ilgen, Major, and Hollenbeck, 1993). To survive in the business environment, therefore, organization ought to pay careful attention to the team function and be actively involved in managing their teams effectively. It is not too much to say that organizations' ability to manage their teams determines how much they utilize their human capital, and their successes in today's business environment.

    The number of studies on teamwork has increased since the 1990's and this reflects the sudden increase of attention on team management (Levine, & Moreland, 1990; Sanna & Parks, 1997). One of the main issues in the team studies is how to affect the internal audit teams function, so that teams attain greater effectiveness. In this study, a team is defined as a collection of individuals who interact dynamically and adaptively toward a common goal, each having a specific set of functions to perform (Salas, Dickinson, Converse, & Tannebaum, 1992).

    Many of the dominant models of team performance emphasize that team performance depends upon both the resources available to the team and the function utilized by the team (Hackman, 1987; Steiner, 1972). In a interpersonal communication, member participative is an important resource that can greatly impact on team operational effectiveness (Laughlin, 1980; McGrath, 1984). While, planning integrative function seems to affect team performance too. Recent research suggests that the ability of team members to recognize member shared knowledge and teamwork commitment are an important factor in the performance of internal audit teams (Bottger, 1984; Bottger & Yetton, 1988; Libby, Trotman & Zimmer 1987; Littlepage, Schmidt, Whisler, & Frost, 1995). Thus, the level in operational effectiveness of internal audit team depends upon both the level of internal audit team function and membership in the team. (Bottger, 1984; Libbly et al, 1987).

    Teamwork can be a powerful way for organizations to gain productivity, operate a redesigned operation, increase flexibility, reduce waste, and improve quality and customer satisfaction. However, using teams effectively requires that you incorporate change into the culture. Yet a number of researchers have pointed to the importance of teamwork, suggesting that team routines are occasionally disrupted by a variety of different kinds of events (Stewart & Manz, 1995). For example, a team may encounter an unexpected problem that they do not know how to solve (Morgeson, 2005). Or there may be conflict within the team that can impair team functioning and create a situation where internal audit team is needed to improve in this study.

    The purpose of this paper is to examine the association between internal audit team function in Thai listed companies on operational effectiveness and to assess why these three mediators related risk reduction, economics of resources and governance. We think internal audit team function will be influences to increase internal audit team outcomes and operational effectiveness. Thus, we have research questions as follows: (1) how does internal audit team function affect internal audit team outcome? (2) how do internal audit team outcomes have relationship with operational effectiveness? (3) how does business environment influence the relationship between internal audit team function and internal audit team outcome?

    The remainder of the paper is organized as follow. The second section reviews existing relevant literature, the conceptual framework is presented, and a set of testable hypotheses is proposed. The third section presents the data set used in this research and research methodology which includes information about the sample, study measures, data analysis, and test results. The fourth section describes the tests of the research questions and results as well as the reasonable discussion. The fifth section proposes theoretical contributions, managerial implications for future research. And the last section is the conclusion.


    Success in today's workplace often derives from teamwork and employee empowerment (Axelrod, 2000; Boyett & Boyett, 1998; Purser & Cabana, 1998). This democratization of work stems from globalization, increased diversity, the development of technology, and unprecedented environmental change (Heckscher & Donnellon, 1994; Hickman, 1998; Renn, 1998). Many organizations turn to collaborative work to embrace and capitalize on this change (Boone, 1990; Hutchins, 1992; Patterson, 1998).

    2.1 Internal audit team function on internal audit outcome

    With regard to the previous mentions, this study attempts to examine the effects of internal audit team function on internal audit team outcome and reflect to operational effectiveness in Thai listed companies. In aspect of internal audit team function, team is defined as a team that is a collection of individuals who are interdependent in their tasks, who share responsibility for outcomes, who see themselves and who are seen by others as an intact social entity embedded in one or more larger social systems (for example, business unit or the corporate), and who manage their relationships across organizational boundaries (Sundstrom, DeMeuse and Futrell, 1990; Guzzo and Dickson, 1996). By this definition, internal audit team, empowered teams, quality improvement teams, and team effectiveness. In the end, to clearly understand the internal audit team function is exploited and utilized to explain and describe accounting phenomena. Then, the component of internal audit team function that we define in this study has five dimensions: shared knowledge, project participative, planning integrative, interpersonal communication and teamwork commitment.

    Internal auditing is a process that examines and evaluates the functioning of an organization (Eden & Moriah, 1996) and compares actual performance against standards or expectations, based on relevant indices, to improve the organization's achievements (Golberson & Globerson, 1990). Internal audit team comprises a comprehensive plan and methods aimed at helping the management team to enhance organizational control (Scott, Mannion, Davies, & Marshall, 2003). Internal audit team outcome is characterized by three important features: risk reduction, economics of resources and governance. In complex organizations there is a need to increase members' motivation by showing that the goal of the audit is to improve the efficiency and effectiveness of the organization (Eden & Moriah, 1996). Thus, the research model in this study presents the internal audit team function, internal audit team outcomes, and operational effectiveness relationship are shown in Figure 1.


    2.2 Joint Intention Theory and SharedPlans Theory

    Teamwork has been the focus of a great deal of research in distributed artificial intelligence field. Joint intention theory and SharedPlans theory are two widely accepted formalisms for teamwork. Joint intentions can be viewed as a joint commitment to perform a collective action to achieve a certain joint goal. Joint intention theory is significant because it not only offers a framework for studying numerous teamwork issues, but also provides a guide for implementing multiagent systems.

    The SharedPlans formalism is originated from the mental state model of plans of Pollack (1990). Grosz and Kraus (1998) formalized the concepts of individual plans and shared plans, and explored how a shared plan for a team action evolves to a final complete that recipe for the team action.

    2.3 Hypothesis Development

    The value-added auditing approach actually represents a total paradigm shift. Instead of viewing auditors as policeman and auditing as punitive and after the fact, it stresses collaborative team effort, participatory problem solving, and proactive improvement rather then reactive corrections (Wallace, 2005). Team-based auditing is preferred on high-risk audit as well as for all audit work. So, internal audit team function also requires operational effectiveness, process auditing, proper auditors' skills and team-based audits. The members in the internal audit team have an expert knowledge to share the auditing. The organization of audit project is, of course, the preliminary stage of audits that members must to be participative. In order to achieve the audit goals, interpersonal communication and teamwork commitment is the critical stages in audit team-based too. Adams (1999) claimed that audits are the core of an effective quality assurance program and inadequate resources (i.e. using single auditor) for such internal audit team function are the utilization of the quality assurance in auditing.

    2.3.1 Shared knowledge is defined as the extent to which knowledge is shared by different user that is about internal audit of standardizing the knowledge (communities of practice). (Kwan & Balasubramanian, 2003).

    Team audits can provide team access to the broader specialized knowledge content of its individual members, and also identify those areas where critical specialized knowledge is absent. Furthermore, given acceptance of the common goal for improving internal control in risk reduction, benefits achieved through understanding to use resources in optimal and synergy...

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