Internal and external auditors responsibilities and relationships with audit committees in two English public sector settings

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Abstract

This paper assesses the job of scrutiny and oversight in public services by examining the role of the internal auditor (IA) and external auditor (EA) and their relationship with the audit committee (AC) in two distinct English public sector environments. The research uses an exploratory qualitative case study approach based on semi-structured interviews, AC meeting observations, and documentation reviews. The study acts as a starting point to examine the effectiveness of governance arrangements during a period of change in the UK public sector. The research provides evidence of good triangulation between the work of the IA, EA, and AC. Nevertheless, having close interaction between EAs and ACs and a crossing over in terms of responsibilities may lead to a conflict of interest and raises serious doubts about the independence and objectivity of the EA. This needs to be closely monitored over the coming years. Due to the diversity and wider and more complex accountability relationships and intricacies found in public sector organisations the study highlights the need to consider additional factors to the analysis of simple principal agency theory assumptions. The research further provides evidence on the existence of loosely coupled CG structures within the roles of the EA and IA within local government. This is one of the few papers which explores the IA and EA roles and their relationship with the AC in an organisational and institutional setting different from the private sector.

Keywords: Internal Auditor, External Auditor, Audit Committee, Agency Theory, Loose Coupling, English Public Sector

Authors’ individual contribution: Conceptualization — K.H. and A.S.; Methodology — K.H. and A.S.; Validation — K.H. and A.S.; Writing — Original Draft — K.H. and A.S.; Writing — Review & Editing — K.H.; Visualization — K.H. and A.S.; Supervision — A.S.; Project Administration — K.H.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: M4

Received: 16.03.2021
Accepted: 07.06.2021
Published online: 10.06.2021

How to cite this paper: Hegazy, K., & Stafford, A. (2021). Internal and external auditors responsibilities and relationships with audit committees in two English public sector settings [Special issue]. Corporate Ownership & Control, 18(3), 395–409. https://doi.org/10.22495/cocv18i3siart13