Title of Article Reviewed Sarens, G., and Abdolmohammadi, M.J.

(2011), "Monitoring Effects of The Internal Audit Function: Agency Theory Versus Other Explanatory Variables", International Journal of Auditing, Vol. 15, No. 1, pp. 120.

ARTICLES CONCEPTS, CONTRIBUTION, PROBLEMS AND OBJECTIVES This article is a replicative and complementary study that investigates the factors that have an impact on the size of the Internal Audit Function (IAF), developed by Carcello et al. (2005a, 2005b), within the corporate governance framework of internal auditing (IA). Due to recent events such as uncertain and risky economic environment, corporate scandals, scarcity of resources, economic recession, loss of market confidence and rapid changes in innovation and business legislative have highlighted the critical role of board of directors and management of organization to strive for better performance and to improve corporate governance. An effective IAF plays key role in assisting the boards and senior management to discharge their governance responsibilities and be accountable to the achievement of corporate objectives. Hence, IAF has gained an increasing importance in recent years as one of the important monitoring and control mechanisms in corporate governance as well as to contribute to the achievement of corporate objectives. This is a particularly important issue for Belgium (and by extension, Continental Europe) because the internal audit profession is growing rapidly as an important corporate governance mechanism.

Among the dominant literatures on the size of IAF as dependent variable in the prior research were by Carcello et al. (2005a, 2005b) and Goodwin-Stewart & Kent (2006). Using a sample of mid-sized US public companies, Carcello et al. (2005a) have sought to investigate whether there is evidence that IA budgets are positively related to company size; leverage; financial, service, and utility industries; relative amount of inventory; operating cash flows; and audit committee review of the IA budget. In addition, Carcello et al. (2005b) investigated changes in the IAF budget and absolute IAF size in a similar sample during the time of the major US accounting scandals (200102). Alternatively, Goodwin-Stewart & Kent (2006), came out with evidence

that the absolute number of internal auditors is associated with firm size (positively), the number of business segments (negatively), the use of a Big 5 auditor (negatively), the proportion of receivables and inventory (negatively), the number of audit committee meetings (positively) and leverage (negatively). These pre-studies have developed a framework that shows the model of association between the sizes of IAF and the extent to which a company want to invest in monitoring via the IAF, particularly, investigate the factors that are related to the size of the IAF. The author of this article intends to replicate those pre-studies by testing the framework. However, instead of using the IAF budget or absolute size as a dependent variable, the author uses relative size of the IAF (i.e., the number of IAF staff as a percentage of the total number of employees) as a proxy, as well as a measure for the extent to which a company wants to invest in monitoring via the IAF, specifically, investigating the effects of agency theory and other explanatory variables.