The effects of quality assurance rating by independent assessors on external auditors’ judgment on evaluation of the internal auditor’s work
Authors:   , Treepornchaisak Patcharee 
Published: September 2023

The International standard on Auditing (ISA) 610, using the work of internal audit allows the external auditors to use internal audit’s work and use internal auditors as assistants. But the external auditors have to evaluate internal audit function by themselves. The self-evaluation causes uncertainty in using IAF’s work and using internal auditors as assistants. The prior studies identify that the three determinants of IAF quality are objectivity, competence and work performance. This study argues that the quality assurance report (QAR) help increase external auditors’ reliance decision. Moreover a paper posits that the internal control environment is also related to the external audits’ judgment. The paper manipulates the QAR rating into generally conform, partially conform and no report and classifies the internal audit (IA) report rating into satisfactory versus partial satisfactory. The IA report is represented an internal control of company while the QAR is presented quality of IAF. For the main predictions, the study forecasted that the effect of the internal audit report type on the likelihood to use IAF’s work for control testing/substantive/and use IA as assistant are conditional upon the QAR rating The experiment results mostly support the predictions where the dissertation found that the external auditors were willing to use IAF’s work in good internal control environments than poor internal control environments. The finding indicates that internal control environments is an addition determinant of external auditors’ reliance decision. Additionally the external auditors who receive generally conform QAR have greater likelihood to use IAF’s work than those who receive partially conform and no QAR. This result confirms that the QAR help increase external auditors’ reliance decision. However, the finding highlights the potential reliance error in no QAR condition as they have bias against the IAF’s work. The external auditors treat a quality of IAF in no QAR condition as poor as partially conform QAR condition. The incorrect reliance of auditors can cause over and under audit work, leading to ineffectiveness or inefficiency of audit engagement. In the second experiment, the research investigates on salience bias. The study constantly holds satisfactory internal audit report while the experiment manipulates QAR at four levels (Generally conform, partially conform and unrelated to work performance, partially conform and related to work performance and no report). The paper predicts that the external auditors likelihood to use IAF’s work decreases from generally conform, partially conform and unrelated to work performance, no report and partially conform and related to work performance respectively. The result is mostly consistent with prediction. The result confirms salience bias as they decrease willing to use IAF’s work in partially conform and unrelated to work performance condition. The external auditors ignore details of information that is not related to work performance. Again, the incorrect reliance of auditors leads to ineffectiveness of audit engagement and clients lose opportunity to utilize IAF.