Internal auditors’ job satisfaction higher with incentive pay, survey finds

Internal auditors who receive incentives based on profits or revenue report higher job satisfaction and loyalty to their organisations without having their objectivity compromised, according to a new survey report.

Amongst the 1,600 internal auditors who responded to the survey conducted in North America, about 50% of chief audit executives, 56% of directors of internal audit, 48% of audit managers, and 39% of audit staff receive profit- or revenue-based bonuses.

On a scale of 1 to 5, those who receive profit- or revenue-based incentives rated their job satisfaction at 3.94, compared with 3.85 for those who do not receive incentives.

Internal auditors who receive incentives also reported higher levels of identification with their organisation (3.79 vs. 3.61) and lower levels of conflict between their organisations’ work standards/procedures and their ability to act according to professional judgement (2.28 vs. 2.39).

The survey results did not show that auditors’ objectivity is impaired when their incentives are tied to profits, according to the survey report by Venkataraman Iyer, CPA, Ph.D., an accounting professor at the University of North Carolina at Greensboro.
 
Auditors who receive profit-based compensation actually showed a higher propensity to suggest a write-down and higher estimates of inventory obsolescence in a hypothetical case study presented in the survey. These results ran opposite to the idea that auditors’ judgement may be impaired if they receive profit-based incentives.

The report, Job Satisfaction for Internal Auditors: How to Retain Top Talent, was published by The Institute of Internal Auditors Research Foundation. Other findings include:

• Lower-ranking internal audit staff members have lower levels of identification with their employers and their profession.
• One-tenth of respondents indicated a sense of conflict between organisational procedures and their professional judgement as internal auditors.
• About 72% of respondents disagreed or disagreed strongly that there was a conflict between work standards and their ability to use professional judgement. Lower-ranking, staff-level respondents reported higher levels of conflict between their organisations’ work standards/procedures and their ability to act according to professional judgement.
• Chief audit executives who report to the audit committee perceive less organisational/professional conflict than those who report to management. This supports the idea that reporting to the audit committee enhances auditors’ independence, according to the report.

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine editorial director.