The Reliance of External Auditors on the Internal Audit Function

Abstract

increased use of internal auditing (IA) by client firms leads to the possibility that external auditors will increasingly rely on IA in conducting their audits (Ward and Robertson [1980]), particularly as the quality of IA increases over time. According to Statement on Auditing Standards (SAS) No. 9, the decision to rely on IA should be preceded by an evaluation of the IA function: The independent auditor should acquire an understanding [emphasis added] of the internal audit function as it relates to his study and evaluation of internal accounting control. work performed by internal auditors may be a factor in determining the nature, timing, and extent of the independent auditor's procedures (AICPA [1975]). Although SAS No. 9 provides guidelines on the characteristics of IA that might affect auditors' evaluations' and subsequent decisions to rely on clients' IA functions, it does not suggest their relative importance. According to SAS No. 9, the three primary factors affecting the evaluation and reliance decisions are internal auditors' competence, objectivity, and work. objective of this research was to determine both the extent to which auditors would rely on the IA function, and the relationship between their reliance decisions and their evaluations of IA strength. Included in the investigation was an assessment of the levels of impor-