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The Effects of Internal Audit Report Disclosure on Investor Confidence and Investment Decisions
Travis P. Holt,
The University of Alabama
Todd Dezoort, The University of Alabama
ABSTRACT. Despite internal audit’s prominence as a critical governance mechanism, external stakeholders lack information about the function. This study evaluates whether a descriptive Internal Audit Report (IAR) affects investor confidence and investment decisions. The study also tests whether company fraud risk affects IAR use. Using a sample of 111 graduate business students, the results indicate that participants provided with an IAR had more confidence in company oversight effectiveness and financial reporting reliability than participants without access to an IAR. The IAR effect on confidence in financial reporting reliability is particularly evident for high fraud risk companies. Mediation tests reveal that oversight effectiveness mediates the IAR-confidence in financial reporting relation. Furthermore, we find that confidence in oversight effectiveness and financial reporting reliability mediates the IAR-investment recommendation relation.
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