Governance factors affecting internal auditors' ethical decision‐making: An exploratory study

The purpose of this paper is to explore the ethical decision making of internal auditors and the impact of corporate governance mechanisms thereon. It also aims to explore whether ethical decision making is influenced by years of experience in internal auditing.

A total of 66 internal auditors were presented with five ethical dilemmas. For each scenario, a key element of corporate governance was manipulated to assess its impact on ethical decision making. These were audit committee support; management integrity regarding accounting policies; management integrity regarding pressure on internal audit; external auditor characteristics; and organisational code of conduct.

Participants were generally sensitive to ethical dilemmas but were not always confident that their peers would act ethically. A higher quality external audit function was positively associated with internal auditors' ethical decision making. However, the strength of other governance mechanisms did not appear to influence ethical decision making. Finally, more experienced internal auditors adopted a more ethical stance in some cases.

The sample was self‐selected and may not be representative of internal auditors in general. The lack of significant results may be due to insufficient variability in the manipulations and/or an oversimplification of reality in our scenarios.

The study has implications for the internal audit profession with respect to training and the provision of support mechanisms to strengthen the ability of internal auditors to withstand pressure when dealing with ethical dilemmas.

This paper is the first to study whether the strength of other governance mechanisms influences internal auditors' ethical decision making.