Optimizing Internal Audit and Control System Through Absorptive Capacity Development
Abstract
Abstract: The business environment becomes increasingly complex, organizations must find ways to optimize their internal audit and control systems to keep pace with the changing landscape. Developing absorptive capacity can play a critical role in achieving this goal. By identifying, assimilating and utilizing new knowledge, organizations can improve their internal audit and control systems and increase their chances of success in today's rapidly changing environment. The findings of this research will provide valuable insights for practitioners and researchers on how to improve internal audit and control systems through the development of absorptive capacity. Organizations that can develop their absorptive capacity will be better equipped to identify new risks and opportunities, assimilate new information and technologies, and utilize this knowledge to improve their internal audit and control systems.
References
Abuazza, W. O., Mihret, D. G., James, K., & Best, P. (2015). The perceived scope of internal audit function in libyan public enterprises. Managerial Auditing Journal, 30(6–7), 560–581.
Afsay, A., Tahriri, A., & Rezaee, Z. (2023). A meta-analysis of factors affecting acceptance of information technology in auditing. International Journal of Accounting Information Systems. 49, 100608.
Ajayi, B. A., & Hussin, H. (2018). Conceptualizing Information Technology Governance Model for Higher Education: An Absorptive Capacity Approach. Bulletin of Electrical Engineering and Informatics, 7(1), 117–124.
Alfraih, M. M. (2016). Corporate governance mechanisms and audit delay in a joint audit regulation. Journal of Financial Regulation and Compliance, 24(3), 292–
Ali, M., & Park, K. (2016). The mediating role of an innovative culture in the relationship between absorptive capacity and technical and non-technical innovation. Journal of Business Research, 69(5), 1669–1675.
Ali, S., Green, P., & Robb, A. (2013). Measuring top management’s IT governance knowledge absorptive capacity. Journal of Information Systems, 27(1), 137–155.
Aliasghar, O., Rose, E. L., & Chetty, S. (2019a). Building absorptive capacity through firm openness in the context of a less-open country. Industrial Marketing Management, 83(September 2018), 81–93.
Badawi, I., Elifoglu, I., Latshaw, C. and Zollo, R. (2003), “New interagency guidance on the internal audit function”, Bank Acoounting and Finance, Vol. 16 No. 6, pp. 32-42.
Bae, J. (2015). The effects of technological, organizational, and people characteristics on absorptive capacity and innovation performance in IT industrial clusters. International Journal of Multimedia and Ubiquitous Engineering, 10(2), 383–394.
Bolívar-Ramos, M., García-Morales, V. J., & Martín-Rojas, R. (2013). The effects of Information Technology on absorptive capacity and organisational performance. Technology Analysis and Strategic Management, 25(8), 905–922.
Camisón, C., & Forés, B. (2011). Knowledge creation and absorptive capacity: The effect of intra-district shared competences. Scandinavian Journal of Management, 27(1), 66–86.
Cenamor, J., Parida, V., Oghazi, P., Pesämaa, O., & Wincent, J. (2019). Addressing dual embeddedness: The roles of absorptive capacity and appropriability mechanisms in subsidiary performance. Industrial Marketing Management, 78(February 2016), 239–249.
Cepeda-Carrion, G., Cegarra-Navarro, J. G., & Jimenez-Jimenez, D. (2012). The effect of absorptive capacity on innovativeness: Context and information systems capability as catalysts. British Journal of Management, 23(1), 110–129.
Chang, Y., Wong, S., Eze, U., & Lee, H. (2019). The effect of IT ambidexterity and cloud computing absorptive capacity on competitive advantage. Industrial Management and Data Systems, 119(3), 613–638.
Cohen, W. M., & Levinthal, D. A. (1990). Absorptive Capacity: A New Perspective on Learning and Innovation. Administrative Science Quarterly, 35(1), 128.
Cooper, V. A., & Molla, A. (2014). Absorptive capacity and contextual factors that influence green it assimilation. Australasian Journal of Information Systems, 18(3), 271–288.
Cui, T., Wu, Y., & Tong, Y. (2018). Exploring ideation and implementation openness in open innovation projects: IT-enabled absorptive capacity perspective. Information and Management, 55(5), 576–587.
Danquah, M., Ouattara, B., & Quartey, P. (2018). Technology Transfer and National Efficiency: Does Absorptive Capacity Matter? African Development Review, 30(2), 162–174.
Daspit, J. J., Long, R. G., & Pearson, A. W. (2019). How familiness affects innovation outcomes via absorptive capacity: A dynamic capability perspective of the family firm. Journal of Family Business Strategy, 10(2), 133–143.
Datta, A. (2012). IT-based knowledge capability and commercialization of innovations: Modeling the impacts of ambidexterity and absorptive capacity. International Journal of Knowledge Management, 8(3), 83–97.
Duan, Y., Huang, L., Luo, X., Cheng, T.C.E., & Liu, H. (2021). The moderating effect of absorptive capacity on the technology search and innovation quality relationship in high-tech manufacturing firms. Journal of Engineering and Technology Management. 62, 202656.
Fadzil, F. H., Haron, H., & Jantan, M. (2005). Internal auditing practices and internal control system. Managerial Auditing Journal, 20(8), 844–866.
Felski, E. (2023). Audit technologies used in practice and ways to implement these technologies into audit courses. Journal of Accounting Education. 62, 100827.
Flor, M. L., Cooper, S. Y., & Oltra, M. J. (2018). External knowledge search, absorptive capacity and radical innovation in high-technology firms. European Management Journal, 36(2), 183–194.
Fu, X., & Polzin, C. (2010). Sustainability of Technology-intensive Social Innovation in India: The Role of Absorptive Capacity and Complementary Assets. The Rise of Technological Power in the South, 3(2), 320–340.
García-Morales, V. J., Bolívar-Ramos, M. T., & Martín-Rojas, R. (2014). Technological variables and absorptive capacity’s influence on performance through corporate entrepreneurship. Journal of Business Research, 67(7), 1468–1477.
Gold, A. H., Malhotra, A., & Segars, A. H. (2001). Knowledge management: An organizational capabilities perspective. Journal of Management Information Systems, 18(1), 185–214.
Harvey, G., Skelcher, C., Spencer, E., Jas, P., & Walshe, K. (2010). Absorptive capacity in a non-market environment. Public Management Review, 12(1), 77–97.
Heiden, P., Pohl, C., Mansor, S., & Genderen, J. (2015). The role of education and training in absorptive capacity of international technology transfer in the aerospace sector. Progress in Aerospace Sciences, 76, 42–54.
Heiden, P., Pohl, C., Mansor, S., & Genderen, J. (2016). Necessitated absorptive capacity and metaroutines in international technology transfer: A new model. Journal of Engineering and Technology Management, 41, 65–78.
Henderson, D., Davis, J., & Lapke, M. (2013). The Effect of Internal Auditors’ Information Technology Knowledge on Integrated Internal Audits. International Business Research, 6(4), 147–163.
Hervas-Oliver, J.-L., Albors-Garrigos, J., De-Miguel, B., & Hidalgo, A. (2012). The role of a firm’s absorptive capacity and the technology transfer process in clusters: How effective are technology centres in low-tech clusters? Entrepreneurship and Regional Development, 24(7–8), 523–559.
Hoai, T., Hung, B., & Nguyen, N. (2022). The impact of internal control systems on the intensity of innovation and organizational performance of public sector organizations in Vietnam: the moderating role of transformational leadership. Heliyon. 8 (2), e08954.
Hong, J., Zheng, R., Deng, H., & Zhou, Y. (2019). Green supply chain collaborative innovation, absorptive capacity and innovation performance: Evidence from China. Journal of Cleaner Production, 241.
Huang, M., Bhattacherjee, A., & Wong, C.-S. (2018). Gatekeepers’ innovative use of IT: An absorptive capacity model at the unit level. Information and Management, 55(2), 235–244.
Huh, B., Lee, S., & Kim, W. (2021). The impact of the input level of information system audit on the audit quality: Korean evidence. International Journal of Accounting Information Systems. 43, 100533.
Hurtado-Palomino, A., Gala-Velasquez, B., & Ccorisapra-Quintana, J. (2022). The interactive effect of innovation capability and potential absorptive capacity on innovation performance. Journal of Innovation & Knowledge. 7, 100259.
Ince, H., Imamoglu, S. Z., & Turkcan, H. (2016). The Effect of Technological Innovation Capabilities and Absorptive Capacity on Firm Innovativeness: A Conceptual Framework. Procedia - Social and Behavioral Sciences, 235(October), 764–770.
Jiménez-Castillo, D., & Sánchez-Pérez, M. (2013). Nurturing employee market knowledge absorptive capacity through unified internal communication and integrated information technology. Information and Management, 50(2–3), 76–86.
Kaawaase, T., Nairuba, C., Akankunda, B., & Bananuka, J. (2021). Corporate governance, internal audit quality and financial reporting quality of financial institutions. Asian Journal of Accounting Research. Vol. (6) No. (3), pp. 348-366.
Khan, A., & Tao, M. (2022). Knowledge absorption capacity’s efficacy to enhance innovation performance through big data analytics and digital platform capability. Journal of Innovation & Knowledge. 7, 100201.
Khan, Z., Lew, Y. K., & Marinova, S. (2019a). Exploitative and exploratory innovations in emerging economies: The role of realized absorptive capacity and learning intent. International Business Review, 28(3), 499–512.
Lane, P. J., Koka, B. R., & Pathak, S. (2006). The reification of absorptive capacity: A critical review and rejuvenation of the construct. Academy of Management Review, 31(4), 833–863.
Lee, J., Lee, H., Park, J.-G., Ochara, N. M., Kandiri, J., & Johnson, R. (2014). Exploring the impact of empowering leadership on knowledge sharing, absorptive capacity and team performance in IT service. Information Technology & People, 27(3), 366–386.
Li, X., Liu, Z., Ren, A., & Gong, B. (2022). What fuzzy requests bring to frontline employees: An absorptive capacity theory perspective. Journal of Retailing and Consumer Services. 67, 102986.
Liu, H., Ke, W., Wei, K. K., & Hua, Z. (2013). The impact of IT capabilities on firm performance: The mediating roles of absorptive capacity and supply chain agility. Decision Support Systems, 54(3), 1452–1462.
Liu, Y., Deb Armstrong, D., & Riemenschneider, C. (2018). The relationship between information systems (IS) assets, organizational capabilities, and is-enabled absorptive capacity in U.S. State information technology departments. Communications of the Association for Information Systems, 42(1), 125–146.
Micheels, E. T., & Nolan, J. F. (2016). Examining the effects of absorptive capacity and social capital on the adoption of agricultural innovations: A Canadian Prairie case study. Agricultural Systems, 145, 127–138.
Min, W., Ling, K., & Piew, T. (2016). The effects of technological innovation, organizational innovation and absorptive capacity on product innovation: A structural equation modeling approach. Asian Social Science, 12(1), 199–222.
Moreno, V., Coelho, M., & Pitassi, C. (2019). Outsourcing of IT and absorptive capacity: A multiple case study in the Brazilian insurance sector. Brazilian Business Review, 17(1), 97–113.
Oh, J.-M. (2017). Absorptive capacity, technology spillovers, and the cross-section of stock returns. Journal of Banking and Finance, 85, 146–164.
Petti, C., Tang, Y., & Margherita, A. (2019). Technological innovation vs technological backwardness patterns in latecomer firms: An absorptive capacity perspective. Journal of Engineering and Technology Management, 51, 10–20.
Petti, C., & Zhang, S. (2013). Technological entrepreneurship and absorptive capacity in Guangdong technology firms. Measuring Business Excellence, 17(2), 61–71.
Pihlajamaa, M., Kaipia, R., Säilä, J., & Tanskanen, K. (2017). Can supplier innovations substitute for internal R&D? A multiple case study from an absorptive capacity perspective. Journal of Purchasing and Supply Management, 23(4), 242–255.
Popescu, D. I., Ceptureanu, S.-I., Alexandru, A., & Ceptureanu, E.-G. (2019). Relationships between knowledge absorptive capacity, innovation performance and information technology. case study: The Romanian creative industries SMEs. Studies in Informatics and Control, 28(4), 463–475.
Pizzi, S., Venturelli, A., Variale, M., & Macario, G. (2021). Assessing the impacts of digital transformation on internal auditing: A bibliometric analysis. Technology in Society. 67, 101738.
Rae, K., Sands, J., & Subramaniam, N. (2017). Associations among the Five Components within COSO Internal Control-Integrated Framework as the Underpinning of Quality Corporate Governance. Australasian Accounting, Business and Finance Journal, 11(1), 28–54.
Raymond, L., Bergeron, F., Croteau, A.-M., & St-Pierre, J. (2016). IT-enabled Knowledge Management for the Competitive Performance of Manufacturing SMEs: An Absorptive Capacity-based View. Knowledge and Process Management, 23(2), 110–123.
Riemenschneider, C. K., Allen, M. W., Armstrong, D. J., & Reid, M. F. (2010). Potential absorptive capacity of state it departments: A comparison of perceptions of cios and it managers. Journal of Organizational Computing and Electronic Commerce, 20(1), 68–90.
Riikkinen, R., Kauppi, K., & Salmi, A. (2017). Learning Sustainability? Absorptive capacities as drivers of sustainability in MNCs’ purchasing. International Business Review, 26(6), 1075–1087.
Rittenberg, L. and Anderson, R. (2006), “A strategic player: hiring and inspiring a chief audit executive”, Journal ofAccountancy, Vol. 202, No. 1, pp. 51-54.
Saemundsson, R., & Candi, M. (2017). Absorptive capacity and the identification of opportunities in new technology-based firms. Technovation, 64–65, 43–49.
Seo, Y., Chae, S., & Lee, K. (2011). The impact of creative self-efficacy, IT support, and knowledge on individual creativity through absorptive capacity. Communications in Computer and Information Science, 264, 177–186.
Spanos, Y. E. (2012). Absorptive capacity and the propensity to adopt advanced technology: The case of computer integrated manufacturing (CIM) systems. International Journal of Information Technology and Management, 11(4), 323–346.
Strese, S., Adams, D. R., Flatten, T. C., & Brettel, M. (2016). Corporate culture and absorptive capacity: The moderating role of national culture dimensions on innovation management. International Business Review, 25(5), 1149–1168.
The Committee of Sponsoring Organizations of the Treadway Commission COSO (2013). Internal Control – Integrated Framework.
Todorova, G., & Durisin, B. (2007). Absorptive capacity: Valuing a reconceptualization. Academy of Management Review, 32(3), 774–786.
Tzokas, N., Kim, Y. A., Akbar, H., & Al-Dajani, H. (2015a). Absorptive capacity and performance: The role of customer relationship and technological capabilities in high-tech SMEs. Industrial Marketing Management, 47, 134–142.
Vieira, C., Briones-Peñalver, A.-J., & Cegarra-Navarro, J.-G. (2015). Absorptive Capacity and Technology Knowledge: Enhancing Relational Capital. Knowledge and Process Management, 22(4), 305–317.
Vlačić, E., Dabić, M., Daim, T., & Vlajčić, D. (2019). Exploring the impact of the level of absorptive capacity in technology development firms. Technological Forecasting and Social Change, 138(September 2018), 166–177.
Wu, S., Ding, X., Liu, R., & Gao, H. (2019). How does IT capability affect open innovation performance? The mediating effect of absorptive capacity. European Journal of Innovation Management, 24(1), 43–65.
Zahra, S., & George, G. (2002). Absorptive capacity: A review, reconceptualization, and extension. Academy of Management Review, 27(2), 185–203.
Zarei, H., Rasti-Barzoki, M., & Moon, I. (2020). A mechanism design approach to a buyer’s optimal auditing policy to induce responsible sourcing in a supply chain. Journal of Environmental Management, 254(November 2019), 109721.
Zhang, M., Zhao, X., & Lyles, M. (2018). Effects of absorptive capacity, trust and information systems on product innovation. International Journal of Operations and Production Management, 38(2), 493–512.
Zou, B., Guo, F., & Guo, J. (2016). Absorptive capacity, technological innovation, and product life cycle: a system dynamics model. SpringerPlus, 5(1).