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THE RELATIONSHIP BETWEEN INTERNALAUDITING AND EXTERNALAUDIT FEES:
EVIDENCE FROM KUWAIT
SBE, Vol.20, No.1, 2017
ISSN 1818-1228
©Copyright 2017/College of Business and Economics,
Qatar University
sign. Such a result is consistent with findings of
prior related empirical studies (e.g., Simunic,
1980; Chan
et al
., 1993) suggesting that
external audit fees increase as the size of the
audit client increases. Contrary to expectation,
however, the regression results indicate that
the regression coefficient of the other control
variables are insignificant. The insignificant
results related to these control variables is
similar to results reported in prior related
research. For example, the lack of significance
related to the ROA and QUICK variables can
be explained in light of the opposing arguments
that corporate financial characteristics such as
profitability and liquidity can be viewed both
as proxies of firm’s risk and firm’s ability to
pay higher amounts of audit fees at the same
time. While the risk manifestation suggests
a negative relation to external audit fees,
the “deep pocket” representation suggests a
positive relation to audit fees.
In sum, the results reported in the current
study provide empirical evidence from the
Kuwaiti audit Kuwait that IA involvement
in the external audit fees is associated with a
reduction in external audit fees. This result is
similar to findings reported in several similar
studies (e.g., Felix
et al
., 2001; Ho and
Hutchinson, 2010; Zain
et al
., 2015) and is
consistent with the idea of IA as a substitute for
external audits.
IV.
SUMMARYAND CONCLUSION
As indicated, the main objective of the current
study is to examine whether IA contribution in
the external audit work is significantly related
to the amount of external audit fees. Competing
arguments have been offered in the audit
literature about the direction of such a relation.
On the one side, some audit researchers argue
that IA should be looked at as a complementary
function that add to the overall corporate
monitoring and control activities, suggesting
a direct relationship between IA contribution
to the external audit work and the amount of
external audit fees. On the other hand, other
audit researcher view IA contribution as a
substitute to the external audit function, and
therefore, expect this type of engagement to
be inversely related to the amount of external
audit fees. Empirical research examining to the
relationship between IA contribution and audit
fees has produced mixed results, leaving the
door open for further examination about this
issue.Moreover, much of the previous empirical
research examining the IA-fee relationship
stems from well developed countries, with
very little research examining this issue in the
context of a developing country.
Using data related to a number of audit
engagements performed in the Kuwaiti market,
the current study performs an examination
of the relationship between IA contribution
to the external audit work and the amount of
audit fees. This research seems to be warranted
especially in light of the obvious shortage
of empirical research about this issue in the
context of developing countries’ markets. This
study, therefore, fills the gap in the international
audit literature by providing empirical
evidence about the IA-fees relationship from
the Middle East region, namely the Kuwaiti
market. The results reported in the current
study provide evidence of a significant and
negative relationship between IA contribution
in the external audit work and the amount of
external audit fees.
The current study’s empirical findings have
some policy implications. For example,
the empirical evidence that IA contribution
does substitute for some substantial audit
procedures may be insightful for audit
profession regulators, especially in Kuwait
when establishing guidance for the relationship