Exploring the antecedents of internal auditors' voice in environmental issues: Implications from China

• DOI: http://doi.org/10.1111/ijau.12204
• Published date: 01 November 2020
• Date: 01 November 2020

ORIGINAL ARTICLE

Exploring the antecedents of internal auditors' voice in

environmental issues: Implications from China

Xin Liu

1

| Wei Li

2

| Kristine Parsons

1

1

School of Business, Pacific Lutheran

University, Tacoma, WA, USA

2

College of Business Administration, Kent

State University, Kent, OH, USA

Correspondence

Xin Liu, School of Business, Pacific Lutheran

University, Tacoma, WA 98447, USA.

Email: liuaa@plu.edu

The purpose of this article is to explore the antecedents of internal auditors' voice in

environmental-related issues. Using 226 responses from internal auditors and their

immediate supervisors from China, we found that internal auditors' perceived organi-

zational environmental orientation and their individual environmental orientation

were significantly related to both their promotive and prohibitive voice in environ-

mental issues. Internal auditors' perceived supervisory support for the environment

was significantly related to their promotive voice, whereas internal auditors' environ-

mental commitment was significantly related to their prohibitive voice. Moreover,

internal auditors' environmental commitment mediated the relationships between

the other three antecedents and their prohibitive voice in environmental issues. Our

findings provide insights for researchers, practitioners, and regulators.

KEYWORDS

Environmental Issues, Internal Audit, Sustainability, Voice

1|INTRODUCTION

As an internal advisor, internal auditors play a leading role in integrat-

ing environmental sustainability into an organization's operations,

articulating potential risks threatening environmental sustainability,

providing assurance to environmental sustainability–related informa-

tion, and enhancing environmental sustainability practices (Cohen &

Simnett, 2015; Darnall, Seol, & Sarkis, 2009; Lee, 2016; Martinov-

Bennie, Frost, & Soh, 2012; Nieuwlands, 2006; Peters & Romi, 2015;

Piper, 2017). Some companies even established environmental audits

internally (Darnall et al., 2009). Despite a growing emphasis on the

important role of internal auditors in environmental reporting, internal

auditors' involvements in environmental issues are still inadequate

due to limited resources for Internal Audit Functions (IAFs)

(Committee of Sponsoring Organizations of theTreadway Commission

[COSO] & World Business Council for Sustainable Development

[WBCSD], 2018; Institute of Internal Auditors [IIA], 2017; PWC,

2011). For example, the majority of chief audit executives (CAEs) and

director/senior managers who participated in the IIA's Pulse of Inter-

nal Audit survey reported that environmental risks were “not part of

internal audit's risk assessment or audit planning”(IIA, 2017, p. 9). So

far, only a few studies (e.g., Soh & Martinov-Bennie, 2018; Trotman &

Trotman, 2015) have investigated factors that influence internal audit

managers' (e.g., CAEs) and audit committees' decisions to involve in

environmental assurance and consulting. There is a lack of research

exploring what factors encourage staff internal auditors to speak up

their concerns over environmental-related issues and risks, especially

when environmental risks are “not part of internal audit's risk assess-

ment or audit planning”(IIA, 2017, p. 9).

To fill this research gap, this study strives to explore the anteced-

ents of internal auditors' voice in environmental issues. According to

prior voice behavior literature (e.g., Liang, Farh, & Farh, 2012; Van

Dyne, Ang, & Botero, 2003) and suggestions from the IIA (Chambers,

2019), we define internal auditors' voice as their expression of con-

structive suggestions, concerns, and ideas about potential problems

and risks for the issues outside the scope of an audit. Thus, our study

aims to investigate factors influencing internal auditors to express

their concerns when environmental risks are not within the scope of

their audit planning. Specifically, using 226 survey responses from

internal auditors and their immediate supervisors in China, our study

examines the effects of four factors on internal auditors' promotive

and prohibitive voice in environmental issues. We found that internal

auditors' perceived organizational environmental orientation, per-

ceived supervisory support for the environment, and their individual

Received: 16 December 2019 Revised: 14 June 2020 Accepted: 19 August 2020

DOI: 10.1111/ijau.12204

396 © 2020 John Wiley & Sons Ltd Int J Audit. 2020;24:396–411.wileyonlinelibrary.com/journal/ijau

environmental orientation were significantly related to their promo-

tive voice in environmental issues. We also found that internal audi-

tors' perceived organizational environmental orientation, their

individual environmental orientation, and environmental commitment

were significantly related to their prohibitive voice in environmental

issues. In addition, internal auditors' environmental commitment medi-

ated the influence of the other three antecedents on their prohibitive

voice in environmental issues.

Our findings provide important insights to interested parties such

as researchers, practitioners, and regulators. To our knowledge, our

study is the first to examine staff internal auditors' voice in environ-

mental issues. Different from prior studies that examine the factors

that influence internal audit management's decisions and activities in

environmental issues (e.g., Soh & Martinov-Bennie, 2018; Trotman &

Trotman, 2015), our study aims to understand the important role of

staff internal auditors in environmental reporting. By using a survey

approach, our study contributes to the growing environmental

reporting research (e.g., Darnall et al., 2009; Soh & Martinov-Bennie,-

2015, 2018; Trotman & Trotman, 2015) by investigating actual

behavioral factors of staff internal auditors' voice and providing

research evidence on potential factors that influence staff internal

auditors' motivation to speak up on environmental issues. This study

further contributes to international environmental reporting research

by adding research evidence from an emerging economy country

(e.g., Ridley, D'Silva, & Szombathelyi, 2011; Simnett, Vanstraelen, &

Chua, 2009). This study also extends the existing management litera-

ture on employees' voice by examining potential antecedents and

mediators of voice behavior, as suggested by Morrison (2011).

In addition, the findings provide insights to internal audit prac-

tice. Given the limited resources for IAFs, an avenue by which

internal auditors could help their organizations to maintain environ-

mental sustainability is through their voice (Brady, 2018; Cascone,

Derose, & Nefedova, 2010; Chambers, 2019; Smith, 2005). By

expressing their suggestions and concerns about environmental

issues, internal auditors are able to analyze environment

noncompliance, improve business performance on environmental

issues, and eventually add values to their organizations

(Brinkley, 2013; EY, 2011; IIA, 2010; Nieuwlands, 2006). The

results show that internal auditors' perceived organizational envi-

ronmental orientation, perceived supervisory support, individual

environmental orientation, and environmental commitment can fos-

ter their voice behavior, suggesting it is important to improve

internal auditors' awareness of environmental issues and their sen-

sitivity to these issues (Lin, 2017). Therefore, firms may benefit

from emphasizing certain environmental sustainability areas in

training, developing environmental strategies and policies, and pro-

viding supervisory support to staff internal auditors. This study also

provides insights to internal audit practice in China. While Chinese

accounting and auditing standard setters (e.g., China National Audit

Office [CNAO]; Chinese Institute of Internal Auditors [CIIA]) have

emphasized the important role of internal auditors in environmental

reporting, there is a lack of research exploring how to improve

IAFs' involvement in environmental issues in China (Lin, 2017). This

exploratory study provides policymakers with information to estab-

lish future regulations and improve environmental reporting prac-

tice in China.

The structure of this article is as follows. In the second section, we

review the existing literature and propose our hypotheses. In the third

section, we describe the methodology of the study. In the fourth sec-

tion, we describe the results of the study. In the fifth section, we discuss

the findings of the study and provide suggestions for future research.

2|LITERATURE REVIEW AND

HYPOTHESES DEVELOPMENT

2.1 |Environmental Sustainability

With the increasing global attention on sustainability, businesses are

facing elevated needs for sustainable business operations

(Bebbington & Larrinaga, 2014; Hales, 2018; LeBlanc &

Kislevitz, 2016). Successfully managing sustainability in business prac-

tice will significantly influence organizations' operations and ultimately

have sustainable financial outcomes (Deloitte, 2012; Eccles,

Loannou, & Serafeim, 2011). Investors have increasingly realized the

importance of long-term, sustainable growth of future financial per-

formance (EY, 2018a). As a result, companies face a growing pressure

from investors to increase sustainability-related disclosures (Dhaliwal,

Radhakrishnan, Tsang, & Yang, 2012; Pflugrath, Roebuck, &

Simnett, 2011; Piper, 2017). In particular, environmental-related dis-

closures have received a significant attention in financial reporting

(Brooks & Oikonomou, 2018). This trend rapidly creates needs for

assuring the reliability of sustainability-related information for internal

users to improve business operations as well as for external users to

make better investment decisions (Eccles et al., 2011; EY, 2018a).

Unsustainability issues may generate potential business risks that

harm a company's future financial outcomes. In order to achieve sus-

tainable business, a company needs efforts from all functional areas.

In particular, the IAF has a unique role to assure sustainability infor-

mation in financial reporting (Jones & Solomon, 2010; Soh &

Martinov-Bennie, 2015, 2018; Trotman & Trotman, 2015). In addition,

IAFs can provide consulting services to guide risk management, pro-

mote sustainable management decision-making, and direct corporate

operation toward sustainable development (Adams & Frost, 2008;

Allegrini, D'Onza, Melville, Sarens, & Selim, 2011; Arena &

Azzone, 2009; Ballou, Casey, Grenier, & Heitger, 2012; Darnall

et al., 2009; Nieuwlands, 2006; Sarens & De Beelde, 2006).

2.2 |Internal Auditors' Voice in Environmental

Issues

One way that internal auditors contribute to corporate governance

and ensure sustained performance is through their voice (Baker, 2011;

Chambers, 2019; Friedman, Akaaboune, & Margolis, 2013; Gramling,

Maletta, Schneider, & Church, 2004; Smith, 2005; Witzany, 2016).

LIU ET AL.397