The effect of internal audit function quality and internal audit contribution to external audit on audit fees

Zain, Mazlina Mat, Zaman, Mahbub, & Mohamed, Zulkifflee (2015) The effect of internal audit function quality and internal audit contribution to external audit on audit fees. International Journal of Auditing, 19(3), pp. 134-147.

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Abstract

Corporate governance mandates and listing rules identify internal audit functions (IAF) as a central internal control mechanism. External audits 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 audits, we extend prior research which is based mainly on internal audits' 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 high quality IAF induces greater external auditor reliance on internal auditors' work and thus result in lower external audit fees.

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ID Code: 93379
Item Type: Journal Article
Refereed: Yes
Keywords: Internal auditing, Corporate governance, Audit fees
DOI: 10.1111/ijau.12043
ISSN: 1090-6738
Subjects: Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BANKING FINANCE AND INVESTMENT (150200)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
Copyright Owner: Copyright 2015 John Wiley & Sons Ltd
Deposited On: 06 Mar 2016 23:05
Last Modified: 08 Mar 2016 02:37

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