Effects of Internal Audit Quality on the Severity and Persistence of Controls Deficiencies

The objective of this study is to test the effects of internal audit quality on the severity and persistence of the internal controls deficiencies (ICD). Internal audit quality is investigated through the internal audit process, internal audit input and types of ICD. The paper extends previous findings on ICD severity and ICD persistence. Using private data collected with questionnaires and performing logistic regressions, we find that the improvement of planning – scoping and testing – monitoring quality and competences – independence reduces ICD severity, decreasing significant deficiencies and material weaknesses, and reduces persistence of ICD over time. We also find that revenues are the most severe type of ICD, while human resources and period end accounts are the most persistent.