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This article examines the relation between internal audit function (IAF) quality and investment efficiency, a recurring value-added corporate activity critical to firm survival and profitability. We argue that an IAF, unlike other information intermediaries, is uniquely positioned to have access to firm-specific, private information—particularly related to localized, firm-specific risks. If a more competent IAF incrementally improves the information that is generated and communicated to management (while not participating directly in decision-making), we should observe more productive capital investment decisions from firms with higher quality IAFs relative to firms with lower quality IAFs. Through this enhanced information channel, we find that IAF quality is associated with investment efficiency. This result holds for both under- and overinvestment, although not in tests of all subsamples. We also document that this effect is more pronounced for firms with more complexity and for firms with greater investment opportunities. Our evidence indicates that IAF quality provides measurable and economically meaningful value to an organization. [ABSTRACT FROM AUTHOR]

SUMMARY: We summarize a recent study that examines whether and how the signals provided by the internal control over financial reporting (ICFR) opinion and auditor use of advanced data analytic tools (ADAs) influence juror negligence perceptions. When auditors issue an unqualified ICFR opinion and rely on traditional statistical sampling, jurors assess the auditors as more negligent than when the auditors use ADAs. Conversely, when auditors issue an adverse ICFR opinion, jurors ascribe less blame to auditors and more to investor plaintiffs, regardless of whether the auditors use ADAs. Further, jurors perceive auditors as less negligent when they use ADAs for full population testing because they perceive ADAs to be an indicator of higher audit quality. Interestingly, jurors perceive no difference in the level of assurance provided by the audit opinion alone when auditors use ADAs relative to traditional sampling testing methods. [ABSTRACT FROM AUTHOR]

SUMMARY: Audit data analytics (ADAs) allow auditors to analyze the entire population of transactions that has measurable benefits for audit quality. However, auditors caution that the level of assurance on the financial statements is not incrementally increased. We examine whether the testing methodology and the type of ICFR opinion issued affect jurors' perceptions of auditor negligence. We predict and find that when auditors issue an unqualified ICFR opinion, jurors make higher negligence assessments when auditors employ statistical sampling than when they employ ADAs. Further, when auditors issue an adverse ICFR opinion, jurors attribute less blame to auditors and more blame to the investor for an audit failure. Additionally, jurors perceive the use of ADAs as an indicator of higher audit quality and are less likely to find auditors negligent. However, jurors do not perceive a difference in the level of assurance provided when auditors use ADAs versus sampling testing methods. [ABSTRACT FROM AUTHOR]