- مبلغ: ۸۶,۰۰۰ تومان
- مبلغ: ۹۱,۰۰۰ تومان
Related party transactions (RPTs) are viewed as genuine transactions that rationally fulfil other economic demands of a company. However, RPTs can also be used to transfer wealth from minority shareholders to controlling shareholders. The existence of such transactions may deteriorate financial reporting quality, increase audit risk, and as a result increase audit fees. This study examines the relationship between RPTs and audit fees in Malaysia, where ownership is often concentrated within a controlling family and corporate governance mechanisms are poor. It also investigates the moderating effect of the internal audit function (IAF) on this relationship. We find that external auditors base their fees on the types of RPTs undertaken. Specifically, our results show that audit fees are higher for firms that undertake RPTs involving the sale and purchase of assets, goods, and services. We also document that external auditors rely on the IAF, and thus their fees are lower for firms that undertake RPTs and that have made a large investment in an IAF. Our study is the first to provide evidence that RPTs in Malaysian firms may be abused as a channel to facilitate tunnelling and that the IAF plays a vital role in controlling such transactions.
6 Conclusion and implications
Although the literature provides ample evidence on the impact of RPTs on firms’ earnings management and earnings quality, to date studies on the association between RPTs and audit fees are very scarce. Therefore, we aimed to enhance our understanding of the possible reactions of auditors to RPTs in Malaysia, where internal corporate governance mechanisms are relatively weak and the enforcement of the legal system is low. We also sought to address a hitherto unanswered question, that is, whether RPT firms with a high-quality IAF are likely to pay lower audit fees. Although Malaysian firms have been required to disclose more information on RPTs in their annual reports and to maintain an independent internal audit unit, recent scandals have highlighted the complexity of RPT information and raised the issue of whether external auditors include audit risk and efforts in their pricing decisions.
Our results suggest that audit fees are higher for RP sales and RP purchases. We also find that audit fees are lower for firms that engage in RP sales and RP purchases when those firms maintain a well-founded internal audit unit. Finally, our additional regression results show that audit fees are greater for firms with abnormal levels of RP sales and that more investment in the IAF attenuates audit fees for such firms. Our regression results are robust to several sensitivity tests.