Alternative Work Arrangements and Organizational Actions: Internal Auditor Behavioral Responses and Organizational Outcomes Free

Audit tasks and interactions between auditors, their auditees, and team members shifted from face-to-face (FTF) to mostly remote during the 2020 COVID-19 pandemic (pandemic hereafter). Alternative work arrangements (AWAs), including remote and hybrid arrangements, blur the boundaries of the traditional work environment, wherein employees work a prescribed set of hours at a specific firm location. Although many organizations have resumed elements of FTF audits, AWAs will likely continue. Although audit research identifies success factors, including (1) remote work autonomy (Baatwah, Al-Ansi, Almoataz, and Salleh 2023), (2) socialization (Tighe 2024; Commerford, Mullis, and Stefaniak 2023), (3) individual versus group contributions (Bailey, Dalton, Harp, and Phillips 2024), and (4) technological dependence on communication and collaboration (Barr-Pulliam and Carlson 2024), it is unknown whether there are long-term consequences for auditors (KPMG 2020; Bauer, Humphreys, and Trotman 2022). This study focuses on the lived experiences of internal auditors (IAs) with AWAs and how the pandemic influenced those experiences. We identify two factors impacting IA perceptions and behavior: AWA policies and internal audit function (IAF) socialization practices. Additionally, we provide actionable takeaways for IAs to consider in the wake of persistent AWAs.

Experienced external auditors believe that remote auditors can learn technical skills but cannot acquire “soft skills” remotely (Bailey et al. 2024). Although “virtual audit rooms” attempt to simulate FTF experiences, junior auditors’ benefits are limited (Tighe 2024; Barr-Pulliam, Walker, and Zimmerman 2024). Further, IAF studies are limited, and results about the impact of remote work on audit quality are mixed. Eulerich, Wagener, and Wood (2022) find that IAs perceive greater efficiency and effectiveness of stakeholder reliance on remote audits when IAs have more remote work experience. They find that auditee support is central to remote audit success. They also call for research on the mechanisms driving efficiency gains, whether IAs with FTF experience opt to work remotely in the future, and the implications for IAF budgets and staffing.

We explore whether IAs’ experiences during the pandemic influence their desire for AWAs. The Institute of Internal Auditors’ (IIA’s) 2022 North American Pulse of Internal Audit Survey finds that only 25 percent of U.S. respondents work mostly FTF (Internal Audit Foundation 2022). AWA preferences are also among the IAF’s recruiting challenges. Consequently, firms provide AWAs to retain and attract qualified IAs. However, as the pandemic receded, firms had the opportunity to revisit their AWA strategy without the pressure of the pandemic. As a result, there could be variances in whether a company offers AWAs and the factors that motivate those decisions.

We also examine the relationship between socialization practices and IAs’ identification with their employer, engagement teams, and clients (Christ, Eulerich, Krane, and Wood 2021). Relative to external auditors, IAs who strongly identify with their employer are less likely to acquiesce to auditees’ preferences (Stefaniak, Houston, and Cornell 2012; Barr-Pulliam 2019; Burt and Libby 2021).

Social exchange theory (SET) has been used to examine interpersonal relationships in the social sciences (Cook, Cheshire, Rice, and Nakagawa 2013; Cropanzano, Anthony, Daniels, and Hall 2017), including accounting (Dodgson, Agoglia, Bennett, and Cohen 2020). SET maintains that social relationships are a series of sequential transactions based on subjective cost-benefit analysis, where individuals seek to maximize rewards and minimize costs. SET assumes that individuals value fairness and use homeomorphic reciprocity—where the initial actions of one party begin the social exchange and are reciprocated similarly by the target party (Cropanzano et al. 2017).

Recent research has called for updates to SET (Cooper-Thomas and Morrison 2018; Chernyak-Hai and Rabenu 2018) because of the evolving nature of the workplace. Our study extends SET by exploring IAs’ experience with AWAs (see Figure 1).¹

We used best practices in qualitative research in accounting (Westermann, Bedard, and Earley 2015; Bills, Hayne, and Stein 2018; Malsch and Salterio 2016) and research that informs quantitative research (Gibbins and Qu 2005).² We used phenomenology (Moustakas 1994) to understand and describe IAs’ experiences with AWAs.³

We recruited IAs with leadership roles in their department (e.g., manager, director, and chief audit executive (CAE)) through professional contacts, local IIA chapters, and affiliated university alumni networks (Table 1).⁴ Participants include 13 IAs who had pre-pandemic assurance experience⁵ (March 2020–December 2021), and we note where any differences in perceptions exist between CAEs and other leadership perspectives. At the time of the interviews, all participants were employed in-house at the company where they conducted internal audits.

We assigned identifiers to each participant to increase confidentiality and to encourage forthright responses (Miles and Huberman 1994). All interviews were conducted remotely, were recorded with participant consent, were professionally transcribed, and lasted, on average, 40 minutes.⁶ We used NVivo for analysis purposes.⁷ Response patterns revealed distinctions in interactions within engagement teams and with clients and a range of organizational socialization tactics.

SET is used to understand group- and organizational-level actions. Organizations initiate actions through policy expectations (Cropanzano et al. 2017)⁸. Participants discussed their companies’ evolving AWA policies, an initiating action, and described positive and negative target responses (see Figure 2, Panel A).

Six (46.2 percent) participants described organizations that do not have AWAs and how this evoked negative affect and lower job satisfaction. This reluctance could be due to the traditionally client-facing nature of some industries or other related factors. One participant illustrates this by explaining their company’s requirements:

COVID-19 anxiety was exacerbated by FTF work arrangements, which ultimately led to employee resignations.⁹ Similarly, one company made employees return to in-person work at the height of the pandemic despite employee objections and eventual deaths. This choice likely increased worker dissatisfaction and anxiety. One participant shared:

Participants also noted dissatisfaction and increased general anxiety in their work environment because they had become accustomed to the benefits of remote work. One participant made the link between dissatisfaction and higher employee turnover (e.g., as described in Wasti 2003).

After initial remote work, organizations mandated a return to FTF as the pandemic waned. These mandates frustrated many employees (Shan and Tang 2023). For example:

Some IAF leaders understood the benefits that accrued from and the continued need for AWAs. As described below, these leaders fought for an IAF-specific AWA policy, despite the company not promoting AWAs more generally:

Alternatively, seven (53.8 percent) participants described companies with AWAs. AWA policies provided enumerable benefits. One participant described:

Companies that employ AWAs quell workers’ COVID-19 anxiety. One participant noted:

The IAF was able to hire skilled workers, and productivity increased. Despite being geographically dispersed, workers had higher job satisfaction.

Hiring auditors with specific expertise (e.g., information technology) has been difficult for IAFs (Anderson, Christ, Johnstone, and Rittenberg 2012) because job candidates with these skills typically demand higher salaries and more desirable work locations. Consequently, one leader suggested that, in their view, the CAE of their organization would be open to a remote hire despite the CAE’s stated opposition to such hires.

Another participant domiciled in a high-cost city emphasized how openness to AWAs is beneficial:

IAF service quality improves when skills gaps are closed. For example, one participant described their serendipitous hiring process:

The pandemic forced organizations to use intentional tactics to encourage socialization among remote IA employees. Socialization improves organizational outcomes like job satisfaction, retention, and organizational identification (Taormina 1999; Allen and Shanock 2013; Lee 2013), which have also been linked to audit quality (Nasrabadi and Arbabian 2015; Khavis and Krishnan 2021; Condie, Lisic, Seidel, Truelson, and Zimmerman 2023). IAF leaders were cognizant of the importance of FTF social interactions and took deliberate steps to offer these opportunities (see Figure 2, Panel B).

Twelve (92.3 percent) participants mentioned tactics that their organizations enacted to encourage FTF socialization. These strategies primarily relate to new hire onboarding, professional development, and team building. SET highlights the importance of positive social exchanges in establishing positive workplace outcomes. Organizational efforts to address team socialization may evoke homeomorphic reciprocity from IAs and elicit negative and positive responses.

New hires’ experiences are important in establishing organizational identification and also impact employee satisfaction (Allen and Shanock 2013). Five participants (38.5 percent) noted that their organizations fostered this identification through mandatory in-person events. One example of these positively viewed practices is described:

Alternatively, participants expressed overwhelmingly negative views of virtual onboarding. One participant suggested,

Six (46.2 percent) participants described how AWAs influence professional development. The following quote illuminates these views:

Intentional team-building activities or “mandatory fun” was also a positively viewed tactic.

However, some auditors perceived these tactics negatively because “forced socialization” occurred after business hours.

Participants cautioned that some employers’ budgetary restrictions limited socialization. However, many IAF leaders thwarted these limitations by paying for events out of pocket.

Organizations differ in their approach to AWAs. Our participants described how companies with AWAs were associated with positive outcomes, including reduced anxiety, increased perceptions of flexibility, higher job satisfaction, and improved productivity. Conversely, organizations without AWAs experienced negative consequences, including heightened anxiety, increased turnover, and exacerbated hiring challenges. These initiating actions shape IA perceptions and decision-making.

IAF leaders use socialization tactics to increase team cohesiveness and productivity. These were largely successful, but boundary conditions (e.g., budgetary constraints) limited their efficacy. Because IA perceptions of their employers’ socialization tactics are vital to employee satisfaction and retention, our findings have important implications for practice.

Our findings are important because AWAs will likely continue (Bauer et al. 2022). Based on these results, we recommend that employers institute AWAs and devote adequate resources to encourage socialization tactics that lead to better workplace outcomes.

Our study offers insights into the benefits and consequences of AWAs that extend what we learn from prior research (Bailey et al. 2024). By integrating theory, we offer a representative analysis of IAs’ lived experiences but recognize that these insights may be context specific. Future research may explore the persistence of our findings and identify other factors we did not address.¹⁰