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Meshari O. Al-Hajri
61
SBE, Vol.20, No.1, 2017
ISSN 1818-1228
©Copyright 2017/College of Business and Economics,
Qatar University
examining the relationship between audit fees
and IA contribution in a setting that has not
been explored before.
After controlling for some key factors related
to external audit fees, the results show a
negative relationship between external audit
fees and IA contribution in the external audit
work. The empirical evidence provided in the
current study is supportive of IA as a substitute
of substantive audit procedures performed to
carry out the external audit work. The results
provided by the current study should be of
value to audit firms interested in comparing the
level of their coordination with their clients’
IA to that in the market. The current study’s
findings may also be informative to firms’ audit
committees when supervising the coordination
between the external audit team and the firm’s
IA department. Empirical findings offered in
the current study should also be of use to audit
regulators, especially in the Kuwaiti market,
for better understanding and supervision of
the relationship between external auditors and
their clients’ IA functions.
The major contribution of this study is that it
complements prior related research by carrying
out an investigation of the relationship between
audit fees and IA in a developing market’s
settings. This research endeavor, therefore, is
valuable as it is, to the author’s knowledge,
the first to provide empirical evidence about
this important research issue from the Middle
Eastern region.
II.
LITERATURE REVIEW
The relationship between audit fees and IA
contribution has been an issue of interest for
several audit researchers for the last thirty
years. Understanding the interaction between
internal and external auditing is important as
both functions serve as monitoring mechanisms
for corporations (Stein
et al
., 1994; Felix
et al
.,
2001; Goodwin-Stewart and Kent, 2006; Singh
et al
. 2013). In addition, investigating the
relationship between internal and external audit
functions is of value as it has some economic
implications for companies and external
audit firms (Singh
et al
., 2013). Empirical
findings obtained about this relationship have
been mixed and inconclusive, though. While
results obtained by some
prior studies suggest
a negative relationship between audit fees
and IA contribution (e.g., Felix
et al
.; 2001),
evidence reported in other studies show a
positive relationship (e.g., Goodwin-Stewart
and Kent, 2006; Hay
et al
., 2008).
The professional audit guidance encourages
external auditors to rely on work performed by
the audit client’s IA function when it when it is
of adequate quality. In particular, International
Standard on Auditing 610,
Using the Work of
Internal Auditors
, maintains that “the external
auditor shall consider the nature and scope of
the work that has been performed, or is planned
to be performed, by the internal audit function
and its relevance to the external auditor’s
overall audit strategy and audit plan” (IFAC,
p. 7). Using the work of internal auditors can
be useful in conducting more efficient and
effective external audit. That is true since
using such a work would help lowering the
cost of performing the external audit work, and
enables the external audit team to make use of
internal auditors’ familiarity and understanding
with the client’s activities and operations.
The impact of external auditors’ use of IAwork
and external audit fees has been a subject of
investigation by several researchers. Existing
related research reports findings revealing a
positive, negative, and no relationship between
using IA work and audit fees. Researchers
suggesting a significant positive association
between IAcontribution and audit fees interpret