Does Internal Audit Functions Effectiveness influence External Auditors’ Reliance on Internal Audit Work?

Abstract

This study examines the influence of internal audit function effectiveness
on the extent to which external auditors rely on internal audit function work. A
sample of 100 senior external auditors of Tanzanian-listed companies was
purposively selected to provide the data. A questionnaire was employed to collect
the data which were then analysed using a Partial Least Square Structural
Equation Modelling. The result shows that internal audit function effectiveness has
a significant positive effect on the extent of external auditors’ reliance on internal
audit function work. This suggests that external auditors adjust their audit efforts
in response to the effectiveness of the internal audit function, consistent with the
audit risk model. The result contributes a new dimension, the internal audit function
effectiveness and reliance, to the audit risk model. The result has practical
implications for clients and external auditors looking to obtain a cost-effective audit
of financial statements, by recognising the impact of internal audit functions on
external audits.