Abstract:
Purpose
The purpose of this research is to examine the factors that the external auditors consider
important for their reliance on the internal auditor’s work and to examine if there’s any
relationship between the external auditor’s reliance and external audit fees in Pakistani audit
firms specifically in Karachi.
Methodology & Design
This research is quantitative in nature and involved both primary and secondary data that
collected by means of a self-administered cross-sectional survey. A questionnaire was floated to
test the reliance variable from a sample of Pakistani external and internal auditors. A
sectional multiple regression analysis was conducted to test this reliance. SPSS was used to run,
Pearson’s Correlation, One Sample T-Test and Multiple Linear Regression tests in order to
assess the internal consistency of scale, relationship amongst variables and the impact of
individual independent variables on the dependent variable respectively.
was
cross Findings
The key factors considered important by the external auditors for reliance are objectivity,
competence and work performance. Not much research has been done in Pakistan regarding this
issue and this study aims to find a satisfactory outcome regarding the extent of external auditor
reliance and its impact on audit fee.
Practical Implications
This study has provided valuable insights with respect to internal and external auditor
understanding amongst each other and the impact of audit fee due to different factors. Moreover
the findings have once again reinstated the degree of reliance acts as an important predictor of
changes in audit fees.
Recommendations
Further research is necessary to verify the results of this paper by replicating the research with
other companies and auditors in other cities as well like Lahore and Islamabad. Other audit firms
must be approached in Karachi to increase the sample size overall. Furthermore, there is a need
to carry out research in the future to see ifthe system of internal audit in Pakistan develops to a
level that external auditors are more willing to rely on its work rather than charging a fee
according to the balance sheet weightage.
Limitations
Similar to every study, this study has its limitations. The first limitation is the limited number of
companies used in the multiple regression analysis i.e. twenty clients in total (10 per each audit
firm). Also the selection of companies was not done randomly. This casts some doubts about the
generalization of the results of the study to the entire population. In addition the sample sizes
used in the questionnaire also limit the generalizability of the results.
