The Impact of Internal Audit Function Quality and Contribution on Audit Delays

Abstract

This study investigates whether measures of internal audit function (IAF) quality and the IAF’s contribution to the financial statement audit affect audit delay. We conduct empirical tests using 292 observations from 216 firms that responded to the Institute of Internal Auditor’s Global Auditing Information Network survey. Results indicate that audit delay is decreasing in IAF quality, and that this decrease is primarily driven by the competence of the IAF and the quality of their fieldwork. Audit delay is also at least four days shorter when the IAF contributes to the external audit by independently performing relevant work, but not when IAF personnel directly assist the external auditor. We further examine factors that affect the external auditor’s decision to use IAF work. The likelihood that external auditors use independently performed IAF work is increasing in IAF quality, internal auditor availability, and audit committee effectiveness, and decreasing in external auditor availability. The likelihood that IAF personnel directly assist external auditors is decreasing in IAF quality and increasing in audit committee effectiveness.