THE EFFECTS OF HUMAN RESOURCES IN INTERNAL AUDIT ON EXTERNAL AUDIT PRICING DECISION

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Abstract

This study presents evidence that external audit fees are negatively and significantly associated with the proportion of general internal auditors. Further, external audit hours are negatively and significantly associated with the proportion of general auditors without affecting external unit audit price. In addition, the results of the data adjusted for firm size suggest that audit fees and audit hours decrease for smaller firms as the proportion of general internal auditor increases. The result implies that both small firms and their external auditors are encouraged to utilize more general internal auditors in performing an external audit. The author finds no evidence that external audit fees are associated with internal auditor expertise or experience. This shows that external auditors are not likely to rely on internal auditors’ professional judgment in performing an external audit due to reduced auditor independence.

Keywords: Human Resources in Internal Audit, External Audit Pricing, External Audit Fees, External Audit Hours, External Unit Audit Price

JEL Classification: O15, M42

Received: 27.07.2018

Accepted: 06.09.2018

Published online: 14.09.2018

How to cite this paper: Cho, M. K. (2018). The effects of human resources in internal audit on external audit pricing decision. Corporate Ownership & Control, 15(4-1), 165-180. https://doi.org/10.22495/cocv15i4c1p4