Empirical Evidence on The Relationship Between Internal Audit Factors and The Quality of External Audit
- The corporate governance literature indicates efforts to investigate the relationship between internal Corporate Governance Mechanisms (CGM) and Audit Quality (AQ). However, empirical findings prior to this study are inconclusive and not comprehensive enough to address all CGMs in terms of its effect on AQ; hence, this study extends the scope of previous empirical evidence by investigating the impact of internal audit factors as one of the main CGMs on AQ, since the previous studies have not investigated the role of these mechanisms in improving AQ. Mainly, this study aims to investigate and understand the point view of the Jordanian external auditors concerning the impact of internal audit competency, objectivity and work performance on AQ. As a result, this research contributes to the existing literature both in theoretical and practical fronts by developing a theoretical and conceptual framework that aimed to establish a relationship between internal audit factors and AQ. Further, this study test how agency theory can be served as a framework for explaining which mechanisms are important for improving AQ. Professional standards and previous empirical results highlighted that the client’s internal audit can contribute to the external audit service in different ways either direct or indirect way. This research used questionnaire survey to understand the perceptions of external auditors as to the importance specified by them to several internal audit factors which may influence AQ. Respondents were given statements referring to possible attributes of an audit which could enhance and reflect AQ, and were asked to indicate their personal view of the importance of each indicator for AQ. Pilot study was conducted to test the reliability and validity of the research instrument. As a descriptive, correlation and regression findings illustrate that work performance of internal audit is the most important factor that effect on AQ, followed by objectivity and competency respectively. The results also indicate the external auditors consider the AQ indicators are important to achieve high AQ for instance, the audit is conducted in accordance with international standards and the audit’s evidence are important to achieve high AQ. This study recommends that companies should improve the work performance; competency and objectivity of the internal audit to ensure the internal mechanisms are effective to improve the quality of audit service and quality of financial report because internal audit is an essential mechanism of the corporate governance system within the company. The results have implications for the practitioners and regulators who are assessing the role of internal audit functions in improving the quality of financial report. The results also suggest that internal audit factors can assist improving the quality of the audit service during the planning and conducting the audit service such as the evidence that collecting by the internal auditors and the guidance from the internal auditor to the external auditor.
Key words- corporate governance, Audit Quality, internal audit.