Does the expertise of outsourced IAF providers affect audit efficiency? Empirical evidence from an emerging market

Purpose This study aims to examine the effect on audit efficiency of outsourced internal audit function (IAF) providers with industry and/or firm-specific expertise. Drawing on relevant studies from external and internal audit literature, the authors assume that such IAF providers are associated with greater audit efficiency as proxied by audit report lag and audit fees. Design/methodology/approach Based on a sample of firms listed on the Omani capital market during 2005–2019, the pooled regressions are used to test the developed hypotheses. The authors use the market share approach to identify outsourced IAF industry expertise providers and tenure to measure the firm-specific expertise of outsourced IAF providers. Findings The authors find that industry outsourced IAF providers are not associated with shorter audit report lag and lower audit fees. The authors also find that firm-specific expertise outsourced IAF providers are associated with a greater reduction in audit report lag and audit fees. These conclusions are robust under a battery of analyses. The significant contribution of firm-specific expertise outsourced IAF providers to audit efficiency is incremental when abnormal audit report lag and audit fees analysis is conducted. Originality/value The results are the first to attest to the contribution of outsourced IAF with firm-specific expertise. They also show that industry expertise held by outsourced IAF providers does not contribute to audit efficiency.

The effect of Legal Entity Identifiers on audit fee changes

This study investigates whether a client's use of a Legal Entity Identifier (LEI) is associated with audit fee changes. An LEI uniquely identifies different legal entities worldwide, making audit clients' transactions and related parties more transparent and traceable, potentially reducing auditors' costs and audit risks, as reflected in audit fee changes. Using a sample of U.S. firms, I find that audit fees increase more for LEI firms than for non-LEI firms within the first few years of LEI registration, but they increase less for LEI firms than for non-LEI firms afterward. The results support a reduction in audit costs due to LEIs, with a learning effect. I also find that audit firms' brand name and industry expertise strengthen this association. This study provides initial empirical evidence of the effects of LEI and policy implications.

The effect of Islamic banks’ specific corporate governance mechanisms on compliance with AAOIFI governance standards

Purpose The purpose of this paper is to examine the effect of specific Islamic banks’ (IBs) corporate governance (CG) mechanisms on compliance with the Accounting and Auditing Organization for Islamic Financial Institutions’ (AAOIFI) governance standards (GSs) disclosure requirements. Design/methodology/approach Using an unweighted governance compliance index, the authors measure the extent of IBs’ compliance with 7 AAOIFI GSs’ disclosure requirements over the period 2009–2015 (372 bank-year observations). In addition, a multivariate regression analysis was used to test the four hypotheses. Findings This study’s results report substantial non-compliance (the mean of compliance level with AAOIFI’s GSs over the covered years for the entire sampled IBs is 52.1%). The findings reveal that the Shariah Supervisory Board’s (SSB) remuneration, SSB’s members with only industry expertise, SSB’s members with the combined industry expertise and accounting and financial expertise, the existence of internal Shariah Auditing Department and the level of investment accounts holders’ funds are positively associated with the level of compliance with AAOIFI’s GSs. Originality/value The existing studies focusing on the determinants of compliance with AAOIFI’s standards are in the early research stage, as to the best of the authors’ knowledge, there is a paucity of empirical research testing this issue. The authors extend these studies by examining all the AAOIFI’s GSs and focusing on the specific IBs’ CG mechanisms. Furthermore, a major contribution of this study is the examination of the relationship between some SSB’s characteristics and compliance level. To the best of the authors’ knowledge, this is the first research that has examined the effect of the SSB’s remuneration and expertise on compliance level.