Internal audit department characteristics/activities and audit fees : some evidence from Hong Kong firms

Ho, Sandra & Hutchinson, Marion (2010) Internal audit department characteristics/activities and audit fees : some evidence from Hong Kong firms. Journal of International Accounting, Auditing and Taxation, 19, pp. 121-136.

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This study provides preliminary support for the notion that internal audit function assists in reducing external audit effort and fees. Data on internal audit characteristics and activities are obtained from survey respondents of Hong Kong companies and audit fee model data are acquired from their annual reports. The results of this study suggest that the external auditor of firms in Hong Kong rely on the internal audit function and subsequently charge a lower fee. Lower external audit fees are associated with a larger internal audit department and certain activities carried out by the internal audit. Specifically, lower external audit fees are associated with more internal audit effort spent on activities relating to financial statements, systems development and maintenance, operating efficiency and effectiveness, fraud investigations and unlimited access to internal auditors’ working papers. The results of this study suggest that the contribution of the internal audit may substitute for some substantive external auditing processes and lower monitoring costs.

Impact and interest:

9 citations in Scopus
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ID Code: 35757
Item Type: Journal Article
Refereed: Yes
Keywords: Audit fees, Internal audit, Internal control, Agency problem, Hong Kong
DOI: 10.1016/j.intaccaudtax.2010.07.004
ISSN: 1061-9518
Subjects: Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > ACCOUNTING AUDITING AND ACCOUNTABILITY (150100) > Auditing and Accountability (150102)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
Copyright Owner: Copyright 2010 Elsevier.
Copyright Statement: © 2010 Elsevier Inc. All rights reserved
Deposited On: 22 Sep 2010 04:16
Last Modified: 29 Feb 2012 14:17

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