Investigating factors affecting the increase in the level of reliance of independent auditors on internal audit work from the perspective of corporate governance

Dissertation for Master's Degree in Accounting

Accounting Orientation

Abstract

       Independent auditor's reliance on internal audit saves money and provides more services to the employer with the same cost. Optimum use of the work of internal auditors can improve the efficiency and effectiveness of the independent auditor and increase the value of the internal auditor for the employer. The purpose of this research is to investigate the effective factors in increasing the level of independent auditor's reliance on internal audit. The research method is a survey, and the necessary data has been collected using a questionnaire, and the one-sample t test, Pearson's correlation coefficient, and multiple regression were used to test the research hypotheses. The results of the research showed that the variables of independence and impartiality, competence, work performance, effectiveness of internal auditors and the inherent risk level of the employer are effective in increasing the level of independent auditor's reliance on internal audit. Also, the results of the regression analysis showed that the independence and impartiality of internal auditors is the strongest predictor variable and the effectiveness of internal audit is the weakest predictor variable. Keywords: internal auditor, independent auditor, independent auditor's reliance on the internal auditor.                                       

Generalities of the research

1-1  Introduction

Information needs and expectations of various internal and external groups using financial statements such as managers, investors, creditors and the government are the foundation of financial reporting in economic units. Currently, the information needed by different users is provided to them in the form of basic financial statements. Financial statement information is effective for users when it has the quality of reliability and assurance. The users of financial statements can rely on the information of financial statements when an independent, competent and impartial person has provided a professional opinion on the validity of this information. In the current economic systems, the duty of giving opinions on financial statements has been assigned to independent auditors. Auditing is one of the basic elements of the process of responding to users of audited information, because accountability requires the existence of reliable and reliable information, and the reliability of information requires their review by someone independent of the information provider for many reasons. In the process of providing timely, relevant and reliable information, one of the factors that can help independent auditors and ensure that their activities are of the necessary quality, efficiency and effectiveness is the existence of an internal audit unit in the employer's company and the greater communication of this unit with independent auditors. which can have a significant impact on meeting the needs of users from the results of the company's operations.

The American Institute of Internal Auditors [1] (IIA) in 2011 defines internal audit as follows:

"Internal audit is an independent and impartial assurance and consulting activity that aims to add value and improve the organization's operations." By applying a principled and systematic method to evaluate and improve the effectiveness of governance, control and risk management processes, internal audit helps the organization to achieve its goals" (Alainejad, 2010).

According to audit standard 610 "Evaluating the work of the internal audit unit", from the set of Iranian auditing standards, internal audit is defined as follows: It is created to serve that unit and is considered one of the main pillars of the control environment. Evaluating and checking the adequacy and effectiveness of accounting and internal control systems is one of the main duties of the internal audit unit. According to the definition of internal audit, it seems that internal auditors is a delicate and complex activity among the four main groups of applicants for this service, which are: Board of Directors, independent auditors, senior management. Operational

All these groups have valid expectations of audit performance or claim it.. Internal auditors cannot ignore any of the four mentioned cases (Hebars Magazine, 2013).

One of the most important users of the results of the work of internal auditors are the independent auditors who, if they gain sufficient knowledge and decide to rely on the results of their work, various aspects of the independent audit operation will be affected. Relying on the work of internal auditors saves money and provides more services to the business owner with the same cost. The optimal use of the work of the internal auditor can improve the efficiency and effectiveness of the independent auditor and increase the value of the internal auditor for the employer (Jabbarzadeh et al., 2013).

On the other hand, the ultimate goal of the independent audit is to ensure the fair presentation of the operation results and financial status of the institution in the form of financial statements. To achieve this goal and to do it based on accepted auditing standards, the auditor must collect sufficient and reliable documents. Therefore, based on the statement of the fundamental concepts of auditing, gathering and evaluating impartiality of evidence is a necessity for auditing (Riebel[2], 1988).

Independent auditors perform an evaluation of internal control as a basis for determining the amount of work required for the employer. Their assessment of the internal control system can affect the time and limits of audit procedures. The quality of internal control can have a direct relationship with the amount of content tests, so that auditors generally reduce the volume of investigations to a considerable extent if there is a high-quality internal control (Qaments [3], 1982).

According to Statement No. 65 of Auditing Standards and Standard No. 61 of the Iranian Standards Collection, the decision to rely on the work of internal auditors should be accompanied by an evaluation of internal audit performance. The independent auditor should gain knowledge of the internal audit function as a component related to the study and evaluation of internal controls. Then, using the results obtained from the evaluation, plan to use the work of internal auditors.

Professional organizations in other countries have also paid attention to this important issue and have issued appropriate auditing standards. For example, the Canadian Institute of Certified Public Accountants[4] states that independent auditors may generally rely on the work of internal auditors when it involves testing and reviewing the internal control system. The Australian Accounting Research Foundation [5] has issued standard number two auditing procedures for use by internal auditors. This standard states that if the independent auditor is interested in using internal audit work, he should perform a dual evaluation of its performance. First, it performed a general assessment of established criteria including organizational status, scope of duties, professional competence, and professional care. Second, make a specific evaluation of the internal audit work by studying the work of the final sheets and re-examining the work of internal auditors (Ansari et al., 2018).

According to the materials raised about the importance of the internal auditor for different user groups, especially from the point of view of the independent auditor, this research seeks to answer the question of which factors from the point of view of the independent auditor, who is one of the main users of internal audit services, Can it cause the independent auditor to rely more on the internal audit? 1-3 The need for research The independent auditor's reliance on the internal audit has attracted a lot of attention, especially in the last decade, and the reason for this is the belief that a strong corporate governance system helps to minimize the destructive effect of the company's collapse (Rosak and Johnson [6], 2007). Recognition of the role of internal audit in improving the quality of financial reporting also supports this opinion. The Blueribbon Committee report likens audit committees, internal audit, and independent auditing as the three pillars of corporate governance that help ensure the reliability of financial reporting. The use of financial information by the board of directors (on behalf of shareholders) and the participation of internal and independent audit in improving the usefulness of this information provided by management (as well as used), creates an integrated picture of the relationship between the four components of corporate governance. Internal and independent audits help improve the effectiveness of the audit committee by acting as a resource for the board of directors (Desort [7], 2002).