Article2019

Is the type of outsourced internal audit function provider associated with audit efficiency? Empirical evidence from Oman

Saeed Rabea Baatwah · Abood Mohammad Al‐Ebel · Muneer Rajab Amrah

30 citations0/0 files storedInternational Journal of Auditing

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Auditing, Earnings Management, Governance Outsourcing and Supply Chain Management Corporate Governance and Financial Management

Abstract

Abstract The main aim of this study is to provide empirical evidence examining how outsourced internal audit function (IAF) providers are associated with audit efficiency, and how such providers interact with high‐quality external auditors. We use a sample of 711 observations for companies listed on the Muscat Security Market during the period 2005–2014. Based on pooled regression, we find that audit efficiency is significantly improved when the IAF provider is from a Big4 audit firm, whereas a non‐Big4 audit firm IAF provider is associated with reduced audit efficiency. Furthermore, we find evidence suggesting significant interaction between the external auditor and IAF in relation to audit efficiency if the outsourced IAF provider is from a Big4 audit firm. In additional analysis, we construct a new measure for audit efficiency, dividing the IAF providers into Big4, second tier, and other non‐Big4, and consider the time of connection between such providers and their clients. We still observe that Big4, as an outsourced IAF provider, is more significantly associated with audit efficiency than other types of IAF provider. This paper is important because there is currently little evidence concerning the type of outsourced IAF provider; it contains useful information for auditors, companies, and regulators.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1981Auditor size and audit quality 1980The Pricing of Audit Services: Theory and Evidence 1999The Role of Big 6 Auditors in the Credible Reporting of Accruals 2009Big 4 Office Size and Audit Quality 2000Fraudulent Financial Reporting: Consideration of Industry Traits and Corporate Governance Mechanisms 2008Evidence on the Audit Risk Model: Do Auditors Increase Audit Fees in the Presence of Internal Control Deficiencies?*2009Internal Audit Quality and Earnings Management

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