Assorted efforts have been made through a figure of surveies so as to look into the extent of the part of internal hearers in the external audit work.
Surveies of internal and external hearers were conducted by Ward ( 1979 ) and Ward and Robertson ( 1980 ) , to garner information on “ the extent to and the mode in which independent hearers already rely on the internal audit functionaˆ¦whether both groups of hearers believe this extent and mode of trust is sufficientaˆ¦and how the extent and mode of trust may alter ”
Barett and Brink ( 1980 ) A examined 150 concern administrations with both internal and external audit and so visited 20 administrations that consist of an effectual board. The consequences of the study revealed that the degree of coordination between internal and external hearers should be evaluated utilizing the extent of trust, that is “ much ” , “ moderate ” and “ small ” coordination.
One of the first surveies was performed byA Brown ( 1983 ) , whoA carried out a thorough probe of the factors that might be deemed of import by external hearers in the assessment of the dependability of the internal audit map. Approximately 101 external hearers, stand foring four auditing houses of the “ Large Eight ” houses in the USA were contacted through questionnaires. The consequences of the study showed that the hearer ‘s judgements of internal audit work were influenced by three factors, which are:
independency of the internal hearer,
satisfaction of the external hearer with the internal audit map during old audits ( known as work public presentation ) , and
competency of the internal hearer.
The first two listed above were termed as the chief factors. As for the competency factor, it was found to be the least of import factor, though important.
As per ISA 610, external hearers are required to measure four factors in make up one’s minding whether internal audit work is sufficient for the intent of their audit. In a similar vena, consequences of an experiment conducted by Arnold Schneider ( 1984 ) A stated that work public presentation was viewed as the most of import factor, followed by competency and objectivity.The consequences were obtained through an examinination of the perceptual experience of hearers towards the internal audit map, in footings of the rating of the strength of the internal audit map by hearers. Harmonizing to Statement on Auditing Standards ( SAS ) 9, an probe of three factors was conducted, including internal hearers ‘ competency, objectiveness and work public presentation. The methodological analysis adopted in this survey involved designing and administering a questionnaire to Certified Public Accountant ( CPA ) houses in the State of Ohio, found in USA.
Using informations from 1975 to 1981, Wallace ( 1984 ) A investigated the nexus between a company ‘s disbursement on internal auditing and external audit fees. Consequences of a arrested development analysis performed utilizing a sample of 31 companies used variables that are related with external audit fees, including gross from operating activities, entire assets, net gross, figure of accessory houses and the entire disbursement on the internal audit section. Finally, the decision was that there exists a notable negative relationship between disbursement on internal audit section and external audit fees paid. The consequences besides indicated that the internal audit map had changed over clip, therefore going more refined and hence increasing the likeliness of external hearers ‘ trust on internal hearers.
Another relevant survey conducted by Schneider ( 1985 ) led to the decision that competency and work public presentation were reagarded as holding equal importance in the rating of the strength of internal audit. Findingss besides provided clear grounds that external hearers place heavy trust on internal audit so as to diminish their external audit work.
Research surveies by Maletta ( 1993 ) and Maletta & A ; Kida ( 1993 ) carried out probes on the factors considered by external hearers ‘ before make up one’s minding to use internal hearers as helpers. The factors included built-in hazard, strength of internal control and quality of internal audit. Internal control strength extremely determines trust on internal audit when work is already done by internal hearers, while internal control strength has no consequence on the determination to trust when internal hearers function as direct helpers to external hearers. The consequences indicated that when a company ‘s internal control strength is regarded as being hapless, external hearers should forbear from trusting on the work performed by internal hearers, but may alternatively use internal hearers as direct helpers.
SteinA et al.A ( 1994 ) A conducted an examintation as to the consequence of internal audit part, among other variables, on audit fees paid to external hearers. The consequences were non as per outlooks and it was found that this variable was non a important determiner of external audit fees.
In Australia, A GerrardA et al.A ( 1994 ) A addressed the issue refering the impact of the internal audit map on external audit fees. The sample from which informations were collected from consisted of 300 publically listed companies in Australia during the 1980s. The method used to pattern audit fees involved a additive arrested development. Consequences revealed that the size, complexness of audited companies and industry differences are major variables in finding divergence in audit fees. Furthermore, it was found that no important relationship existed between internal audit map and audit fees.
A survey was carried out by Haron ( 1996 ) as to how internal and external hearers evaluate the quality of a paysheet internal control system. Findingss reported that there was no major difference between the two parties ‘ rating, thereby reasoning that the work or opinion of internal hearers can be relied upon by external hearers.
The impact of the part of internal hearers on the external audit work in regard of audit fees and the factors that influence this part was analysed by FelixA et al.A ( 2001 ) . With a position to accomplish the aims of the survey, two questionnaires were designed, with the first being sent to audited companies and the other to external hearers. The consequences indicated that the part of internal audit in external audit work significantly determines audit fees. It was found that the higher the coordination of external audit with internal audit, the lower are audit fees, therefore saying a negative relationship. The findings further revealed that audit fees were more or less 18 per centum lower when external hearers placed trust on internal audit.
The degree of coordination between internal hearers and external hearers in Saudi Arabia was examined by Al-TwaijryA et al.A ( 2004 ) .A Through the usage of questionnaires and interviews, it was found that external hearers are dissatisfied with the current internal auditing pattern since they believed that many companies lacked professionalism. On the other manus, the degree of cooperation between internal and external hearers was regarded as limited by internal hearers. The consequences besides revealed that the extent to which external hearers place trust on the work of internal hearers varies with the quality of internal audit. It was agreed that external hearers considered objectiveness, competency and work experience of internal hearers as cardinal factors which influence their determination to trust.
Another study undertaken by Haron et Al ( 2004 ) laid accent on the fact that external hearers frequently place trust on their clients ‘ internal hearers because making so leads to be nest eggs to the client. The survey was carried out to find which of the standards ( objectiveness, competency and internal audit quality ) considered by external hearers largely affects their determination to trust on internal hearers. Consequences were clear plenty to bespeak that work performed and competency are the two most important determiners which affect trust on internal hearers. Haron et Al. besides listed the consequences of the most of import researches undertaken sing the cardinal standards act uponing external hearers ‘ trust on internal hearers:
In a survey conducted by FelixA et al.A ( 2005 ) , it was found that when major non-audit services are provided, client force per unit area well increases the extent of external hearer trust. On the contrary, when important non-audit services are non provided to a client, the quality of internal audit and the degree of coordination between internal and external hearers have a positive consequence on external hearers ‘ determination to put trust.
Group association theory, adopted by Gramling and Vandervelde ( 2006 ) , revealed that external hearers might be subjective in measuring the quality of internal audit when another public accounting house performs the service. Based on an experiment conducted with both internal and external hearers, no difference was found in either party ‘s judgement of competency and work public presentation. Nevertheless, the external hearer respondents considered internal audit objectiveness to be higher when the supplier was another accounting house, which was different from the internal hearer respondents, harmonizing to whom objectiveness was higher when internal audit was provided within the house.
Goodwin-Stewart and Kent ( 2006 ) A reported through their findings that the being of an internal audit map in a house is extremely and positively associated with external audit fees. Consequences pointed out that this positive association has strengthened since 2000. “ This observation suggests that houses that engage in greater internal monitoring through the usage of internal audit besides demand higher choice external auditing ” ( Goodwin-Stewart and Kent, 2006, p. 388 ) .
In a more recent survey, GloverA et al.A ( 2008 ) A analysed how sourcing agreements influence external hearers ‘ determination to trust on the internal audit. Harmonizing to a survey effected on 127 external hearers, consequences showed that the likeliness of external hearers to trust on in-house or outsourced internal hearers ‘ work is equal when inherent hazard is low. Similarly, external hearers are more prone to trust on the work of outsourced instead than in-house internal hearers when built-in hazard is high. In add-on to what has been said, it was found that when built-in hazard is high, external hearers place more trust on work done by internal hearers for undertakings which are nonsubjective, instead than subjective undertakings, but non when built-in hazard is low.
Finally, A Munro and Stewart ( 2009 ) A carried out a study to cognize how internal audit sourcing agreement and internal audit ‘s confer withing affect external hearers ‘ trust on internal hearers ‘ work. Consequences led to the decision that external hearers are less likely to utilize internal hearers ‘ work for substantial testing of history balances than for the appraisal of internal fiscal control. It is to be noted that an exclusion was identified ; that is external hearers employ internal hearers largely as helpers for substantial testing when internal audit is provided in-house.
To sum up, earlier surveies have made usage of a explanatory and experimental attack with no proper theoretical account to steer the research hypotheses. As revealed in Table 1 above, the findings from these surveies have been varied and indecisive. While one survey ( Abdel-khalik et al. 1983 ) identifies objectiveness as the most of import factor, others ( Brown 1983 ; Schneider 1984, 1985a, 1985b ; Margheim 1986 ) term work public presentation as the most important. On the contrary, latest surveies ( Margheim 1986 ; Messier and Schneider 1988 ; Edge and Farley 1991 ; Maletta 1993 ) place that external hearers believe competency to be the most important factor in the appraisal of the internal audit map. Hence, though a notable sum of old research has been carried out, yet there are no clear decisions refering how external hearers truly measure and unite these factors so as to measure the strength of the internal audit map and therefore how much trust to put on internal hearers.