Work

The Effect of Internal Audit Function Quality and Internal Audit Contribution to External Audit on Audit Fees

Year: 2015

Type: article

Abstract: Corporate governance mandates and listing rules identify internal audit functions (IAF) as a central internal control mechanism. External auditors are expected to assess the quality of IAF before placing reliance on its work. We provide evidence on the effect of IAF quality and IAF contribution to external audit on audit fees. Using data from a matched survey of both external and internal auditors, we extend prior research which is based mainly on internal auditors' assessment and conducted predominantly in highly developed markets. We find a positive relationship between IAF quality and audit fees as well as a reduction in audit fees as a result of external auditors' reliance on IAF. The interaction between IAF quality and IAF contribution to external audit suggests that higher quality IAF induces greater external auditor reliance on internal auditors' work and thus result in lower external audit fees.

Source: International Journal of Auditing

DOI: 10.1111/ijau.12043

Authors: Mazlina Mat Zain, Mahbub Zaman, Zulkifflee Mohamed

Institutions: Multimedia University, Queensland University of Technology, Universiti Tun Abdul Razak

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2346377366

FWCI: 28.55

Cites: 51

Cited by: 101

Related to: 10