Articlegold2020

Internal audit functions and audit outcomes: Evidence from Indonesia

Achmad Dzulfikar Dzikrullah · Iman Harymawan · Melinda Cahyaning Ratri

50 citations0/0 files storedCogent Business & Management

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

The internal audit function is important to minimize the occurrence of fraudulent financial statements and provide assurance and independent consultation for decision-making. The purpose of this study is to analyze the relationship of the quality of internal audit team (internal audit function) on audit fees, audit quality, audit choice, and audit opinion. This study uses 722 observations on companies listed on the Indonesia Stock Exchange for two periods from 2016 to 2017 and uses Ordinary Least Square Regression analysis techniques to examine the hypotheses. This study found that one of the internal auditors' functions, which is size of the internal audit team, as a corporate oversight mechanism has a positive and significant relationship to the magnitude of external auditor fees, audit quality, and the tendency of companies to choose auditors with big names (Big4). In addition, this study found that internal audit also has a negative and significant influence on the tendency of companies to accept going concern audit opinions. This research provides support on the benefit of having a good quality of internal auditors for the company. The results of this study indicate that companies that have an adequate internal audit function tend to cost higher external auditor fees, and hiring auditors with big names (Big4) to produce high audit quality. In addition, the existence of adequate internal auditors also reducing the probability of the firms on receiving the going concern audit opinions.

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References

1981Auditor size and audit quality 2002Audit committee, board of director characteristics, and earnings management 2014A review of archival auditing research 2004Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia 2001Do Analysts and Auditors Use Information in Accruals?2009Internal Audit Quality and Earnings Management 2000Auditor Selection and Audit Committee Characteristics 2006Relation between external audit fees, audit committee characteristics and internal audit

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