- مبلغ: ۸۶,۰۰۰ تومان
- مبلغ: ۹۱,۰۰۰ تومان
With the revised version of ISA 610 (revised 2013), external auditors now face both requirements and guidance addressing their responsibilities when relying on the internal audit function (IAF). The reliance decision of an external auditor has important economic consequences and implications for the efciency and efectiveness of the annual audit. Using an experimental design, we explore how German external auditors’ reliance decisions regarding the IAF are afected by varying levels of environmental factors, like client business risk, efectiveness of the internal control system, and quality of the corporate governance. Furthermore, the experiences of external auditors in collaborating with an IAF are taken into consideration. The results indicate main efects for each factor and a two-way interaction between the efectiveness of the internal control system and the quality of corporate governance. Specifcally, a strong internal control system can compensate for weaknesses in corporate governance with respect to the confdence of external auditors in the IAF. Also, the type of audit procedure infuences the willingness of auditors to rely on the IAF, and the inherent risk of the examined transaction strengthens the negative impact of client business risk on the reliance decision. Moreover, past experiences of external auditors with an IAF have a signifcant impact on their reliance decision. Overall, the fndings suggest that organizations can foster internal– external auditor coordination by enhancing corporate governance efectiveness and strengthening the internal control system.
5 Discussion and conclusions
In this study, we examined determinants of external auditors’ reliance on internal audit work and evaluated the impact of three environmental factors in the relationship between internal and external auditors. In particular, we investigated the infuence of client business risk, the efectiveness of the internal control system, and the quality of corporate governance on the willingness of external auditors to rely on the IAF. Also, the efect of the type of audit procedure and the inherent risk of the examined transaction on the reliance decision was investigated. Moreover, we examined the interactions between the determinants and analysed the infuence of past experiences with an IAF on the extent of external auditor reliance on the IAF, measured by the previous intensity of collaboration and the way of communicating with an IAF. Taking prior willingness to cooperate and communicate into consideration introduces new aspects to this research topic.
Consistent with regulatory guidance and previous studies, external auditors exhibit a willingness to place some degree of reliance on their client’s internal audit work. The results of our study suggest that external auditors’ reliance decision is impacted by difering levels of the three main factors. We demonstrate that external auditors may place a higher degree of reliance on the IAF, if the business risk of the audited company is lower, the internal controls are more efcient, or the quality of corporate governance is higher. Thus, our fndings indicate that external auditors perform in accordance with ISA 610.18, i.e. their reliance on the IAF decreases with an increasing risk of material misstatements. Furthermore, we identifed an interaction between the efectiveness of internal controls and the quality of corporate governance, in that strong internal controls might compensate for weaknesses in corporate governance with respect to the confdence of external auditors in the work of the IAF. Especially the efectiveness of the internal control system and the quality of corporate governance are criteria that can be infuenced and regulated by the management of a company.