Factors Influencing the External Auditor's Decision to Rely on Internal Audit During External Audit Tasks

Abstract

#The study aimed to examine the factors influencing the external auditor's decision to rely on the internal audit function during the performance of external audit tasks in the Yemeni business environment. To achieve this, the perception of a sample of external auditors regarding the importance of factors related to the quality of internal audit was studied. These factors included objectivity, competence, and quality of work in relation to the decision to rely on internal audit, as well as factors related to the organizational and environmental aspects of the audited entity. Additionally, the study explored the existing relationship between external auditors and internal auditors in the Yemeni business environment. Data for the study were collected through a questionnaire designed for this purpose based on the results of previous studies in this field. With regard to the requirements of professional standards, the results showed the agreement of external auditors on the presence of a strong and positive relationship between the three specified factors of the quality of the internal audit function (objectivity, competence, and quality of work) on one hand, and the decision of the external auditor to rely on internal audit on the other hand. This is consistent with the requirements of International Standard (610), where these three factors were given relatively high importance in influencing the decision of the external auditor. The factor of quality of work was found to have the highest relative importance compared to the factors of objectivity and competence, indicating the importance of having integrated policies and procedures governing the work of internal audit. The study also highlighted the importance of the existence and effectiveness of the audit committee in the entity, as it plays a crucial role in enhancing the objectivity of the internal audit function. Regarding the actual relationship between external auditors and internal auditors in the Yemeni business environment, the results showed a negative perception among external auditors regarding the role of internal audit in business entities in Yemen. This was evident from several aspects: firstly, the limited benefit they derived from the previous work conducted by internal audit or from direct interaction with internal auditors. Secondly, their perception of the limited benefits of relying on internal audit in assessing the risks of fraud and embezzlement, evaluating and understanding electronic operating systems, and enhancing the efficiency of external audit. Finally, the results of multiple regression analysis indicated that there is no significant influence of factors related to the quality of internal audit, the audit committee, the size of the entity, and the complexity of its operations on the extent of reliance by the external auditor on internal audit.