International Journal of Social Science & Economic Research
Submit Paper

Title:
THE EFFECT OF INTERNAL AUDIT FUNCTION SOURCING ON THE EXTERNAL AUDITOR'S RELIANCE DECISION: AN EXPERIMENTAL STUDY IN EGYPT

Authors:
Sahar said hamed mohamed

|| ||

Sahar said hamed mohamed
Assistant Lecturer, Faculty of Commerce, Damanhour University, Egypt

MLA 8
Mohamed, Sahar said hamed. "THE EFFECT OF INTERNAL AUDIT FUNCTION SOURCING ON THE EXTERNAL AUDITOR'S RELIANCE DECISION: AN EXPERIMENTAL STUDY IN EGYPT." Int. j. of Social Science and Economic Research, vol. 4, no. 2, Feb. 2019, pp. 1538-1557, ijsser.org/more2019.php?id=113. Accessed Feb. 2019.
APA
Mohamed, S. (2019, February). THE EFFECT OF INTERNAL AUDIT FUNCTION SOURCING ON THE EXTERNAL AUDITOR'S RELIANCE DECISION: AN EXPERIMENTAL STUDY IN EGYPT. Int. j. of Social Science and Economic Research, 4(2), 1538-1557. Retrieved from ijsser.org/more2019.php?id=113
Chicago
Mohamed, Sahar said hamed. "THE EFFECT OF INTERNAL AUDIT FUNCTION SOURCING ON THE EXTERNAL AUDITOR'S RELIANCE DECISION: AN EXPERIMENTAL STUDY IN EGYPT." Int. j. of Social Science and Economic Research 4, no. 2 (February 2019), 1538-1557. Accessed February, 2019. ijsser.org/more2019.php?id=113.

References
[1]. Abbass, D. A., & Aleqab, M. M. (2013). Internal auditors' characteristics and audit fees: Evidence from Egyptian Firms. International Business Research 6(4), 67.
[2]. Abbott, L. J., Daugherty, B., Parker, S., & Peters, G. F. (2016). Internal audit quality and financial reporting quality: The joint importance of independence and competence.
[3]. Journal of Accounting Research 54(1), 3-40.
[4]. Abbott, L. J., Parker, S., & Peters, G. F. (2012).Internal audit assistance and external audit timeliness. Auditing: A Journal of Practice & Theory 31(4), 3-20.
[5]. Ahlawat, S. S., & Lowe, D. J. (2004). An examination of internal auditor objectivity: In-house versus outsourcing. Auditing: A Journal of Practice & Theory 23(2), 147-158.
[6]. Ahmed, M., & Shil, S. (2015).Protecting existing and prospective investors and the role of internal auditors. International Journal of Sustainable Development 8(2), 135-152.
[7]. Altwaijry, Abdulrahman. (2017). Internal Audit Quality Evaluation and Reliance Decision: External Auditors' Perception. International Journal of Economics& Management Sciences 6 (5), 1-13.
[8]. Arel, B. (2010). The influence of litigation risk and internal audit source on reliance decisions. Advances in Accounting 26(2), 170-176.
[9]. Asiedu, K. F., & Deffor, E. W. (2017).Fighting corruption by means of effective internal audit function: Evidence from the Ghanaian public sector. International Journal of Auditing 21(1), 82-99..
[10]. Azad, A. N. (2017) The Extent Of External Auditors'reliance On Internal Audit Function: Case Of The UAE. International Journal of Economics(4), 541- 546.
[11]. Bame-Aldred, C. W., Brandon, D. M., Messier Jr, W. F., Rittenberg, L. E., & Stefaniak, C. M. (2013). A summary of research on external auditor reliance on the internal audit function.
[12]. Auditing: A Journal of Practice & Theory 32(sp1), 251-286.
[13]. Bananuka, J., Mukyala, V., & Nalukenge, I. (2017).Perceived Internal Audit Roles and Challenges in a developing economy. Makerere Business Journal 13(2), 187-206.
[14]. Bartlett, G., Kremin, J., Saunders, K., & Wood, D. (2015). External auditors' perceptions of and willingness to work in outsourced and in-house internal audit functions. Available at: https://poseidon01.ssrn.com/delivery.php?ID
[15]. Brandon, D. M. (2010).External auditor evaluations of outsourced internal auditors. Auditing: A Journal of Practice & Theory 29(2), 159-173.
[16]. Brasel, K., Doxey, M. M., Grenier, J. H., & Reffett, A. (2016). Risk disclosure preceding negative outcomes: The effects of reporting critical audit matters on judgments of auditor liability. The Accounting Review 91(5), 1345-1362.
[17]. Brody, R. G. (2012). External auditors' willingness to rely on the work of internal auditors: The influence of work style and barriers to cooperation. Advances in Accounting 28(1), 11- 21.
[18]. Cahan, S. F., & Sun, J. (2015).The effect of audit experience on audit fees and audit quality. Journal of Accounting, Auditing & Finance 30(1), 78-100.
[19]. Che, L., Langli, J. C., & Svanstrom, T. (2017).Education, Experience, and Audit Effort. Auditing: A Journal of Practice and Theory37 (3), 91-115.
[20]. Coram, P., Ferguson, C., & Moroney, R. (2008). Internal audit, alternative internal audit structures and the level of misappropriation of assets fraud. Accounting & Finance 48(4), 543-559.
[21]. Davidson, B. I., Desai, N. K., & Gerard, G. J. (2013).The effect of continuous auditing on the relationship between internal audit sourcing and the external auditor's reliance on the internal audit function. Journal of Information Systems 27(1), 41-59.
[22]. DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of accounting and economics, 3(3), 183-199.
[23]. Desai, N. K., Gerard, G. J., & Tripathy, A. (2011). Internal audit sourcing arrangements and reliance by external auditors. Auditing: A Journal of Practice & Theory 30(1), 149- 171.
[24]. Dumitrescu, D., & Bobi?an, N. (2016). Cooperation and Coordination between Internal and External Auditing. Annals of' Constantin Brancusi 'University of Targu- Jiu. Economy Series (1), 87-90.
[25]. Endaya, K. A., & Hanefah, M. M. (2016). Internal auditor characteristics, internal audit effectiveness, and moderating effect of senior management. Journal of Economic and Administrative Sciences 32(2), 160-176.
[26]. Farrugia, C. (2012). Recent trends in the outsourcing of internal audit: an analysis (Bachelor's thesis, University of Malta).
[27]. Fatmawati, D., &Fransiska, I. P. (2018). Does Accounting Education Affect Professional Skepticism and Audit Judgment? Journal Pengurusan (UKM Journal of Management) 52, 1-21.
[28]. Francis, J. R., & Yu, M. D. (2009).Big 4 office size and audit quality. The Accounting Review 84(5), 1521-1552.
[29]. Francis, J. R., Michas, P. N., & Yu, M. D. (2013).Office size of Big 4 auditors and client restatements. Contemporary Accounting Research 30(4), 1626-1661.
[30]. Glover, S. M., Prawitt, D. F., & Wood, D. A. (2008).Internal audit sourcing arrangement and the external auditor's reliance decision. Contemporary Accounting Research 25(1), 193- 213.
[31]. Gona, S., Mutero, S., &Mazani, B. (2014). Costs and Benefits of an Internal Audit Department: A Case Study of the Zimbabwean Banking Sector. International Journal of Innovative Research and Development 3(13), 119-123.
[32]. Gramling, A. A., Maletta, M. J., Schneider, A., & Church, B. K. (2004). The role of the internal audit function in corporate governance: A synthesis of the extant internal auditing literature and directions for future research. Journal of Accounting literature 23(1), 194-244.
[33]. Gros, M., Koch, S., &Wallek, C. (2017). Internal audit function quality and financial reporting: results of a survey on German listed companies. Journal of Management & Governance 21(2), 291-329.
[34]. Guiral, A., Rodgers, W., Ruiz, E., & Gonzalo-Angulo, J. A. (2015). Can expertise mitigate auditors' unintentional biases? Journal of International Accounting, Auditing and Taxation 24, 105-117.
[35]. Gul, F. A., Wu, D., & Yang, Z. (2013). Do individual auditors affect audit quality? Evidence from archival data. The Accounting Review 88(6), 1993-2023.
[36]. Gullkvist, B., & Jokipii, A. (2015).Factors Influencing Auditors' Self- Perceived Ability to Assess Fraud Risk. Nordic Journal of Business 64 (1), 40-63.
[37]. Hass, S., Abdolmohammadi, M., & Burnaby, P. (2006). The Americas literature review on internal auditing. Managerial Auditing Journal 21(8), 835-844.
[38]. Hegazy, M. A., &Farghaly, M. (2016). Internal Audit Practices and Standards: External and Internal Auditors' Perceptions on Compliance in an Emerging Economy. Available at: https://www.researchgate.net/profile/Mohamed_Hegazy21/
[39]. International Auditing and Assurance Standards Board (IAASB). (2016).
[40]. International Standard on Auditing (ISA) 610 (Revised), Using the Work of Internal Auditors. Available at: https://www.ifac.org/publications-resources/isa-610-revised2013-using-work-internal-auditors
[41]. Krishnamoorthy, G., &Maletta, M. (2016). The contingent effects of board independence and audit committee effectiveness on internal audit reliance: a pre-SOX perspective. International Journal of Accounting and Finance 6(1), 62-85.
[42]. Lennox, C., & Pittman, J. (2010).Auditing the auditors: Evidence on the recent reforms to the external monitoring of audit firms. Journal of Accounting and Economics 49(1-2), 84- 103.
[43]. Mala, R., & Chand, P. (2015). Judgment and Decision?Making Research in Auditing and Accounting: Future Research Implications of Person, Task, and Environment Perspective. Accounting Perspectives 14(1), 1-50.
[44]. Malaescu, I., & Sutton, S. G. (2015).The reliance of external auditors on internal audit's use of continuous audit. Journal of Information Systems 29(1), 95- 114.
[45]. Munro, L., & Stewart, J. (2010). External auditors' reliance on internal audit: the impact of sourcing arrangements and consulting activities. Accounting & Finance 50(2), 371-387.
[46]. Ocak, M., & Kurt, E. (2017). Does Auditor Education Affect Audit Opinion? An Empirical Study of Turkish Listed Firms. Global Business and Economics Review, Forthcoming.
[47]. Ocak, M., & Ozden, E. (2016). Signing Auditor-Specific Characteristics And Audit Report Lag: A Research From Turkey. Journal of Applied Business Research 34(2), 277- 294.
[48]. Ocak, M. (2018). The impact of auditor education level on the relationship between auditor busyness and audit quality in Turkey. Cogent Business & Management, 5(1), 1-20.
[49]. Paino, H., Razali, F. M., &Jabar, F. A. (2015). The Influence of External Auditor's Working Style, Communication Barriers and Enterprise Risk Management toward Reliance on Internal Auditor's Work. Procedia Economics and Finance 28, 151-155.
[50]. Pike, B. J., Chui, L., Martin, K. A., &Olvera, R. M. (2016).External Auditors' Involvement in the Internal Audit Function's Work Plan and Subsequent Reliance Before and After a Negative Audit Discovery. Auditing: A Journal of Practice & Theory 35(4), 159-173.
[51]. Prawitt, D. F., Sharp, N. Y., & Wood, D. A. (2011). Reconciling archival and experimental research: Does internal audit contribution affect the external audit fee? Behavioral Research in Accounting 23(2), 187-206.
[52]. Public Company Accounting Oversight Board (PCAOB). ( 2017). AS 2605: Consideration of the Internal Audit Function. Available at: https://pcaobus.org/Standards/Auditing/Pages/AS2605.aspx
[53]. Quick, R., & Henrizi, P. (2018).Experimental evidence on external auditor reliance on the internal audit. Review of Managerial Science 1-34.
[54]. Raiborn, C., Butler, J. B., Martin, K., &Pizzini, M. (2017). The Internal Audit Function: A Prerequisite for Good Governance. Journal of Corporate Accounting & Finance 28(2), 10-21.
[55]. Ramamoorti, S. (2003). Internal auditing: history, evolution, and prospects. Research opportunities in internal auditing 1-23.
[56]. Said Suwaidan, M., & Qasim, A. (2010). External auditors' reliance on internal auditors and its impact on audit fees: An empirical investigation. Managerial Auditing Journal 25(6), 509-525.
[57]. Schneider, A. 2009.The nature, impact and facilitation of external auditor reliance on internal auditing. Academy of Accounting and Financial Studies Journal 13(4): 41-53.
[58]. Sutaryo, S., & Lase, Y. (2015). Auditors Characteristics and Audit Delay: Evidence from Indonesian Regional Governments. Corporate Ownership & Control 13(1), 66-136.
[59]. Tepalagul, N., & Lin, L. (2015). Auditor Independence and Audit Quality A Literature Review. Journal of Accounting, Auditing & Finance 30(1), 101-121.
[60]. Wan-Hussin, W. N., & Bamahros, H. M. (2013). Do investment in and the sourcing arrangement of the internal audit function affect audit delay? Journal of Contemporary Accounting & Economics 9(1), 19-32.
[61]. Westhausen, H. U. (2017). The escalating relevance of internal auditing as anti-fraud control. Journal of Financial Crime 24(2), 322-328.
[62]. Wood, D. &Prawit, D. F. (2013) Outsourcing the Internal Audit Function and Other Factors Affecting the External Auditor's Reliance Decision. Available at: http://jur.byu.edu/?p=7210.
[63]. Zamzami, F., Tantri, S. N., &Timur, R. P.(2017). Effects of Auditor Independence and Experience, Size of Client's Financial Health and Audit Fee on Audit Quality: An Empirical Study on Public Accounting Firms in Indonesia. Journal of Economics, Business and Management 5 (1), 69-73.
[64]. Zarefar, A., &Zarefar, A. (2016).The Influence of Ethics, experience and competency toward the quality of auditing with professional auditor scepticism as a Moderating Variable. Procedia-Social and Behavioral Sciences 219, 828-832.

Abstract:
Prior research indicates that external auditors are willing to rely on the work of the Internal Audit Function (IAF) when this function has been outsourced, or co- sourced, as opposed to maintain it in-house. This paper investigates whether external auditors in Egypt are sensitive to IAF sourcing by examining external auditors' reliance on the IAF outsourcing versus in-house IAF. This article also addresses the extent to which this relationship between IAF sourcing and external auditors' reliance is moderated by the audit firm size, external auditor's continuing professional education and experience. Participants in this study were 246 external auditors from Big and Non-Big 4 firms. This study utilized an experimental design in which IAF sourcing versus in-house was manipulated. Results indicated that IAF sourcing didn't affect the reliance decision. The results also showed that audit firm size, continuing professional education for the external auditor and external auditor experience didn't moderate this relationship. Those results are important to other researchers involved in investigating auditing quality for emerging countries.