The relationship between objectivity of internal auditors and incentive based compensation case study of insurance companies in Kenya
Abstract
This study examines the relationship between objectivity of internal auditors and
incentive based compensation awarded to them-case study of insurance companies in
Kenya, where a survey of the audit head and the audit staff was undertaken to establish
the current practice in these areas.
The first is the relationship between the internal audit function and the audit committee. It
is argued that a good working relationship and preferably a strong one can enhance
organizational independence of the internal audit function.
The second is the extent to which the internal audit function is used as a management
training ground. While acknowledging the benefits of this practice, it is argued that it
might affect individual objectivity because internal auditors may be reluctant to withstand
pressure from an auditee who could be their future supervisor. The study established that
this is a common phenomenon in organizations and that those who believe that they will,
in some future date, be in management positions perceive that their objectivity won‟t be
impaired perhaps because of the involvement of the audit committee in the affairs of the
internal audit function.
The other factor examined how incentive based compensation affect internal auditors'
reporting decisions. The study sought to find the effect of these schemes through
experimentation where the respondents were given a situation of a hypothetical company
XYZ Ltd which involved a GAAP violation and asked whether they would report the
violation. It was established that they would report the issue irrespective of their
compensation scheme probably because they viewed the benefits as short term.
Publisher
University of Nairobi