External auditor reliance on the work of the internal audit function in Jordanian listed companies
Author | Ashraf Al‐Sukker,Donald Ross,Waleed Abdel‐Qader,Mahmoud Al‐Akra |
Date | 01 July 2018 |
DOI | http://doi.org/10.1111/ijau.12122 |
Published date | 01 July 2018 |
ORIGINAL ARTICLE
External auditor reliance on the work of the internal audit
function in Jordanian listed companies
Ashraf Al‐Sukker |Donald Ross |Waleed Abdel‐Qader |Mahmoud Al‐Akra
Australian Catholic University –North Sydney
Campus, 6078 Peter Faber Business School,
New South Wales, Australia
Correspondence
Mahmoud Al‐Akra, Australian Catholic
University –North Sydney Campus, 6078
Peter Faber Business School, North Sydney,
New South Wales, Australia.
Email: mahmoud.al‐akra@acu.edu.au
This study investigates the factors that influence external auditor (EA) reliance on the
work of the internal audit function (IAF) in Jordanian listed companies (JLCs). It eval-
uates the effect of internal auditor objectivity, competence and work performance as
perceived by senior Jordanian EAs. The study employs a mixed method comprising a
survey‐based factorial experiment in addition to semi‐structured interviews. The
results, based on 35 fully‐crossed factorial experiments and nine interviews with
senior EAs and external audit managers, show that IAF objectivity has the greatest
influence on the EA's decision to rely on the work of the IAF, followed closely by
IAF competence and IAF work performance. Further, there was a significant interac-
tive effect between objectivity and competence, indicating that the EAs do not con-
sider the influence of individual factors in isolation. In interviews, the EAs put
forward many reasons for the importance of all three of the independent variables.
Our results have direct implications for organizations as well as for professional bod-
ies and regulatory authorities charged with encouraging the development of IAFs.
KEYWORDS
audit quality, External audit, internal audit
1|INTRODUCTION
External auditor (EA) reliance on the work of internal audit is relevant
to any organization seeking to secure increased value from its internal
audit function (IAF). The literature indicates that EA reliance on inter-
nal audit work could produce significant cost savings through
reduction of external audit time and fees (Brandon, 2010;
Krishnamoorthy, 2002; Maletta & Kida, 1993; Mihret, 2010; Mihret
& Admassu, 2011; Schneider, 2009). An EA's decision to rely on IAF's
work depends largely on the strength of their client's IAF (Mat Zain,
Zaman, & Mohamed, 2015). In particular, internal auditor (IA) objectiv-
ity, competence, and work performance can influence EA evaluations
of EA decisions to rely on the work of internal audit. Further,
Gramling, Maletta, Schneider, and Church (2004) suggested that the
relative importance of an internal audit quality factor is likely to be
contingent on the level of the other quality factors, thus recognizing
the complexity in the relationship between IAs and EAs (Hay, 2013).
Decision‐makers take into consideration their environment's risk
factors using complex and systematic configural decision processes
(Libby, Artman, & Willingham, 1985; Maletta & Kida, 1993). To
improve decision‐making, we need to understand how individuals
make decisions and what role information plays in that process,
and to recognize the influences of key cues on the judgment deci-
sion and their contributions towards outcomes (i.e., independence
of outcomes or interaction with influence). According to Ganzach
(1997), experienced decision‐makers are more likely to consider
decision cues configurally.
1
In that regard, Desai, Roberts, and
Srivastava (2010) report that IA objectivity, competence, and work
performance are interdependent, such that EAs' judgments of the
IAs remain high even if one of these factors is evaluated negatively;
thus, further empirical verification is needed. Moreover, auditors
seem to have relatively high levels of self‐insight
2
(Ashton, 1974;
Gibbins & Swieringa, 1995; Solomon & Shields, 1995) as a result
of the audit profession's auditing standards and consistency in audi-
tor training (Libby, 1981; Pike, Sharp, & Kantor, 1988). It is impor-
tant to gauge the level of self‐insight so as to improve
understanding of the learning process (Libby, 1981) and improve
the accuracy of judgment (Hooper & Trotman, 1996).
Received: 20 October 2016 Revised: 4 March 2018 Accepted: 26 April 2018
DOI: 10.1111/ijau.12122
Int J Audit. 2018;22:317–328. © 2018 John Wiley & Sons Ltdwileyonlinelibrary.com/journal/ijau 317
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