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Internal audit functions and audit outcomes: Evidence from Indonesia

Author

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  • Achmad Dzulfikar Dzikrullah
  • Iman Harymawan
  • Melinda Cahyaning Ratri

Abstract

The internal audit function is important to minimize the occurrence of fraudulent financial statements and provide assurance and independent consultation for decision-making. The purpose of this study is to analyze the relationship of the quality of internal audit team (internal audit function) on audit fees, audit quality, audit choice, and audit opinion. This study uses 722 observations on companies listed on the Indonesia Stock Exchange for two periods from 2016 to 2017 and uses Ordinary Least Square Regression analysis techniques to examine the hypotheses. This study found that one of the internal auditors' functions, which is size of the internal audit team, as a corporate oversight mechanism has a positive and significant relationship to the magnitude of external auditor fees, audit quality, and the tendency of companies to choose auditors with big names (Big4). In addition, this study found that internal audit also has a negative and significant influence on the tendency of companies to accept going concern audit opinions. This research provides support on the benefit of having a good quality of internal auditors for the company. The results of this study indicate that companies that have an adequate internal audit function tend to cost higher external auditor fees, and hiring auditors with big names (Big4) to produce high audit quality. In addition, the existence of adequate internal auditors also reducing the probability of the firms on receiving the going concern audit opinions.

Suggested Citation

  • Achmad Dzulfikar Dzikrullah & Iman Harymawan & Melinda Cahyaning Ratri, 2020. "Internal audit functions and audit outcomes: Evidence from Indonesia," Cogent Business & Management, Taylor & Francis Journals, vol. 7(1), pages 1750331-175, January.
    • Handle: RePEc:taf:oabmxx:v:7:y:2020:i:1:p:1750331
    DOI: 10.1080/23311975.2020.1750331
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    Cited by:

    1. Abbas Abdelrahman Adam Abdalla & Ahmad Yuosef Alodat & Zalailah Salleh & Waleed M Al-Ahdal, 2025. "The effect of audit committee effectiveness, internal audit size and outsourcing on greenhouse gas emissions disclosure," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 22(4), pages 1072-1087, December.
    2. Li, Ziwei & Li, Xin, 2024. "Legal infrastructure construction and audit opinion: Evidence from the implementation of China's new securities law," Finance Research Letters, Elsevier, vol. 69(PB).
    3. Samson Ojeme Samuel & Owolabi Joseph Alade, 2025. "Effect of Audit Independence on the Financial Reporting Quality of Listed Deposit Money Banks in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(6), pages 4197-4218, June.
    4. Aggelia Xanthopoulou & Andreas Delegos & Petros Kalantonis & Panagiotis Arsenos, 2021. "Exploring the Effect of Corporate Governance on the Audit Effort: The Case of Greek Port Authorities," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 111-129.
    5. Anowar Parves & Mohammad Ataul Huq Bhuyan, 2023. "Factors determining Internal audit quality in some selected banks in Bangladesh," International Journal of Science and Business, IJSAB International, vol. 20(1), pages 123-131.

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