64 / 75
Meshari O. Al-Hajri
63
SBE, Vol.20, No.1, 2017
ISSN 1818-1228
©Copyright 2017/College of Business and Economics,
Qatar University
Hay
et al.
(2008) used data related to a sample
of 130 companies listed on the New Zealand
Stock Exchange, and studied among other
things, the relationship between audit fees and
IA. Their results revealed a positive relationship
between audit fees and IA. Singh
et al.
(2013)
performed a further examination of the fees-IA
relationship in the Australian market using data
related to a sample of 272 publicly listed firms.
Their results revealed a positive association
between audit fees and the existence of IA
function as a proxy for IA usage. Using data
related to a sample of 53 audits from the Hong
Kong market, Ho and Hutchinson (2010)
carried out a similar investigation. Their
results showed a negative relationship between
audit fees and IA. More recently, Zain
et al
.
(2015) recently performed similar examination
in the Malaysian market, using data related
to 74 listed firms. They found evidence of a
significantly negative relationship between
audit fees and IA contribution in external audit.
In sum, empirical findings about the relationship
between audit fees and IA contribution are
mixed and are still inconclusive. Moreover,
it appears that much of prior related research
examining this issue stem from well developed
countries with only little research conducted
in other parts of the world. Besides, to the
author’s knowledge, empirical research about
this relationship is virtually nonexistent in the
context of the Middle East region. Given the
mixed and inconclusive empirical findings
reported about the relationship between audit
fees and IA contribution, this relationship
remains ‘anomalous’ (Hay
et al
., 2006), and,
hence, further examination of this relationship
seems warranted. Therefore, and as indicated
earlier, the current study aims at empirically
examining the relationship between audit
fees and IA contribution using data from the
Kuwaiti market. Such research endeavor aims
at filling the shortage of empirical research on
the IA-audit fee relationship in the context of
developing countries’ markets.
III.
RESEARCH METHODOLOGY
Sample:
To obtain data needed to test the research
questions of interest, a data-gathering
instrument was designed for the purpose
of gathering the needed information. Audit
partners/managers in six audit firms operating
in the Kuwaiti market were contacted and were
requested to provide some information about
a random sample of 15 financial statement
audits for which they have had a supervisory
role. The study’s initial sample consisted of
observations related to 57 audit engagements
(63 percent). Due to missing data, nonetheless,
22 were discarded from the analysis of the
current study. Hence, the study’s final sample
consists of 35 audit engagements.
Model:
As indicted earlier, the main objective of the
current study is to examine the impact of IA
contribution on external audit fees in the
Kuwaiti audit market. The following OLS
regression model is used to examine the
research questions of interest:
FEE = b0 + b1 IA + b2 SIZE + b3 LOCAT +
b4 QUICK + b5 LEVER + b6 ROA + b7 NAS
+ b8 BIG4 + b9 TENURE
Where:
FEE : the natural log of total audit fees;
IA : External auditor’s assessment of the
percentage of external audit work performed
by the audit client’s internal audit staff.
SIZE : the natural log of the audit client’s total
assets;
LOCAT : the natural log of the number of
audit locations visited by the audit team;
QUICK : the audit client’s current assets