مقاله انگلیسی رایگان در مورد تصمیم حسابرس خارجی درباره عملکرد حسابرس داخلی – MDPI 2024

Abstract

Authoritative standards encourage external auditors to coordinate their efforts with the client’s internal audit function (IAF) as part of a financial statement audit. Academic research on this relationship finds that it has the potential to improve audit quality and efficiency. The objective of this research is to better understand how coordination can impact the external auditor’s decision to rely on the IAF. Prior research has shown that the reliance decision is complex and involves several factors that must be considered simultaneously. In this study, we surveyed external auditors to better understand the benefits of coordinating efforts, the antecedents to successful coordination, and the elements that potentially inhibit external auditors from relying on the work of internal auditors. We find that external auditors are coordinating with the IAF to achieve more efficient and effective audits. The degree of this reliance, however, does vary between audits and is largely dependent upon the perceived competence and objectivity of the IAF as well as effective communication. Our findings are informative to external audit practitioners and their decision to rely on IAFs and work towards a successful arrangement where the integrated audit is applied more efficiently and effectively. This additional insight also helps inform and direct future research into external auditors’ coordination decisions.

Introduction

High-quality financial statement audits largely depend on practitioners reaching appropriate judgements and decisions based on their clients’ circumstances. Auditing standards issued by the Public Company Accounting Oversight Board (PCAOB), the American Institute of Certified Public Accountants (AICPA), and the Institute of Internal Auditors (IIA) all emphasize the significance of effective communication and coordination between external auditors and a company’s internal audit function (IAF) to achieve an efficient and effective financial statement audit (e.g., CIIA 2020; CAQ 2015; ECIIA 2019; PCAOB 2024). While none of these standards explicitly mandate any particular arrangement, they all recognize the importance of understanding and considering the work performed by internal auditors. Academic research on this coordination, which is largely derived from experiment-based research designs, finds involvement by external auditors in developing the IAF’s work plans increases reliance and influences the evidence-gathering choices of external auditors (Pike et al. 2016; Felix et al. 2005). What is less understood are the elements that affect the individual judgments of external auditors as they make IAF reliance decisions. These are critical decisions as reliance determinations can vary significantly between audits and directly affect audit quality. Therefore, the purpose of this paper is to examine the circumstances that influence external auditors’ involvement and reliance decisions related to the client’s IAF, as well as the critical antecedents and challenges to coordination. To provide a deeper understanding of auditor involvement and reliance decisions, we survey external auditors related to their experience with IAF coordination and the subsequent impact on audit judgements related to quality and efficiency. Our findings are informative to practice as auditors continue to work towards the optimal level of involvement and coordination with the client’s IAF, to achieve an efficient and effective audit. We also contribute to the extant academia by providing external validity to some of the findings of prior research, identifying additional elements that enhance the reliance relationship between external and internal auditors, and highlighting some of the impediments to successful coordination, paving the way for future research.

Results

Question 1: In your audit experience, please describe the extent of the coordination you have had with the internal audit department of your clients?

Participants describe extensive coordination with the IAF, with 70.7% of the respondents indicating a medium to high level of coordination on most audit engagements. This coordination includes significant involvement in the planning, review, and suggested improvements to the IAF’s testwork. The purpose of these efforts is to align testing approaches, establish sample sizes, and assess the competence and objectivity of IAF. Some respondents highlight challenges related to maintaining independence and encountering issues with the IAF’s competencies. For example, a participant mentioned the importance and challenges of coordination in a resource-limited scenario:

[I] worked with a mid-market public client that devoted limited resources to designing, testing, and monitoring their internal control environment. I worked closely with them [the IAF] to ensure they were compliant with the SOX 404 requirements. Independence was maintained, but at times we may have come close to the boundaries of those rules.