External Auditors’ Involvement in the Internal Audit Function Work Plan and Subsequent Reliance Before and After a Negative Audit Discovery

• In Event: Continental Breakfast and Research & Education Forum
  In Roundtable Session: Table 4: Internal Client Characteristics and Audit Planning

Abstract

Prior research demonstrates that there is an increasing amount of coordination that is taking place between external auditors and their clients’ internal audit function. What is less understood is how this type of coordination affects external auditors’ reliance on the internal audit function and their propensity to re-perform its work. Additionally, little is known as to how a subsequent negative audit discovery influences external auditors’ reliance and re-performance decisions when they have involvement with the internal audit function. We use the belief adjusting model and the anchoring and adjusting literature to examine the effects of coordination on auditors’ reliance and re-performance decisions related to the internal audit function. In an experimental setting, we found external auditors with a high level of involvement with the internal audit function were more willing to rely on and re-perform less of the work performed by the internal audit function. We also found that these auditors, as compared to auditors with no involvement, continued to rely on and to re-perform less of the internal audit function’s work plan even after discovering a subsequent negative audit discovery that should not have occurred if controls were effective.

Authors

• Lawrence Chui, University of St Thomas - Minneapolis

• Kasey A Martin, Texas State University - San Marcos

• Renee Olvera, Texas Christian University

• Byron John Pike, Minnesota State University - Mankato