The Relationship Between Internal Auditing and External Audit Fees: Evidence from Kuwait

Abstract

Although audit pricing has been one of the most studied topics in theaudit literature for more than three decades now, to date, very little research hasbeen conducted on this important issue in the Middle East Region. One importantquestion in this line of audit research has been related to whether audit fees areinfluenced by the contribution of client’s internal auditing (IA) to the externalaudit work. Much of existing research investigating this issue has been conductedin well-developed English-speaking countries, with almost no empirical evidenceprovided about this issue within the context of other parts of the world. Thepurpose of the current study is to examine this issue using data from the Kuwaitiaudit market. In particular, the current study uses a sample of audit engagementsperformed in the Kuwaiti market, to examine whether external audit fees areinfluenced by the contribution of the client’s internal audit function. The resultsshow that IA contribution in the external audit work is negatively related to theamount of external audit fees.