Few studies have examined auditors' decisions to use internal auditors as assistants. In addition, those that have investigated this issue have primarily concentrated on the three internal audit factors: objectivity, competence, and work performed. This study expands the research in this area by investigating the impact of inherent risk on auditors' decisions to use internal auditors as assistants. Specifically, the study examines the effect of inherent risk on (1) the extent to which auditors consider factors related to the internal audit function in making decisions to use internal auditors as assistants and (2) the complexity of auditors' decision processes in making such judgments. The results indicate that inherent risk impacts the extent to which internal audit objectivity and work performed affect auditors' decisions to use internal auditors as assistants. In high inherent risk conditions, the results suggest that auditors use a complex configural decision process to evaluate the objectivity and work performed of the internal auditors. Specifically, in the high inherent risk condition, the effect of the work performed by the internal auditors on auditors' decisions to use internal auditors as assistants is contingent upon the level of internal audit objectivity. When objectivity is high, differences in the nature of the work performed by the internal auditors have a significant effect on auditor judgments. However, when objectivity is low, auditors do not appear to consider the work performed by the internal auditors. In the low inherent risk condition, no interactions exist between internal audit objectivity and work performed as auditors appear to use a less complex decision process in evaluating these variables. Résumé. Peu de chercheurs se sont penchés sur les décisions des vérificateurs de faire appel aux vérificateurs internes à titre d'assistants. En outre, ceux qui se sont intéressés à cette question se sont concentrés avant tout sur des facteurs propres à la fonction de vérification interne, notamment l'objectivité du service de vérification interne, sa compétence et le travail qu'il accomplit. L'auteur élargit les perspectives dans ce domaine en analysant l'incidence du risque inhérent sur les décisions des vérificateurs relatives au service de vérification interne. Il examine plus précisément l'incidence du risque inhérent sur 1) la mesure dans laquelle les vérificateurs tiennent compte des facteurs liés à la fonction de vérification interne dans leur décision de faire appel aux vérificateurs internes à titre d'assistants et 2) la complexité du processus décisionnel qu'utilisent les vérificateurs dans la formulation de ces jugements. Les résultats indiquent que le risque inhérent a des répercussions sur la mesure dans laquelle l'objectivité du service de vérification interne et le travail qu'il accomplit interviennent dans la décision des vérificateurs de recourir à l'assistance des vérificateurs internes. En situation de risque inhérent élevé, les résultats obtenus donnent à penser que les vérificateurs utilisent un processus décisionnel configurationnel complexe pour évaluer l'objectivité des vérificateurs internes et le travail qu'ils accomplissent. Pour être plus précis, en situation de risque inhérent élevé, l'incidence du travail accompli par les vérificateurs internes sur la décision des vérificateurs dépend du niveau d'objectivité du service de vérification interne. Lorsque l'objectivité est élevée, les différences dans la nature du travail accompli par les vérificateurs internes ont une incidence marquée sur le jugement des vérificateurs. Toutefois, lorsque l'objectivité est faible, les vérificateurs ne semblent pas prendre en considération le travail accompli par les vérificateurs internes. En situation de risque inhérent faible, il n'existe aucune interaction entre l'objectivité du service de vérification interne et le travail accompli, étant donné que les vérificateurs semblent recourir à un processus décisionnel moins complexe pour évaluer ces variables.

[Recent audit studies by Brown and Solomon (1990, 1991) reveal that careful consideration of domain-specific knowledge can result in the experimental detection of configural relationships between information cues. These findings suggest that auditors' decisions may be more complex than indicated by some previous research, and that additional research is necessary to identify conditions in which auditors utilize configural processes. This study investigates the role of environmental risk factors on the configurality of audit decisions. That is, we test whether the systematic consideration of audit risk variables results in the identification of higher order, interactive decision processes where linear relationships have previously been detected. The findings of Libby et al. (1985) and existing audit pronouncements are used to develop hypotheses regarding auditors' internal audit decisions. The hypotheses concern (1) the interactive effect of inherent risk and control strength on the extent to which auditors rely on internal audit functions to reduce planned audit work and (2) the extent to which these environmental factors affect consideration of three components of internal audit quality: objectivity, competence, and work performed. Audit managers from a Big Six accounting firm responded to a series of audit-planning cases concerning the receivables cycle of a mediumsized manufacturing firm. Inherent risk and strength of control architecture were manipulated as between-subject variables, while the objectivity, competence, and work of the internal auditors were manipulated within subjects. The results indicate that specific audit decisions are quite complex when elements of the risk environment are explicitly considered. Specifically, reliance on the internal audit function was based on a configural relationship between the levels of inherent risk and control strength. Auditors relied more on internal auditors when control architecture was strong rather than weak in conditions of high inherent risk. However, the effect of control architecture was mitigated when inherent risk was low. Also, complex relationships existed between environmental risk and task-specific components of internal audit quality. For example, auditors considered all three internal audit components when making reliance decisions in the high inherent risk and strong control strength condition, but not in certain other risk conditions. Implications of the experimental results are discussed.]

Recent audit studies by Brown and Solomon (1990, 1991) reveal that careful consideration of domain-specific knowledge can result in the experimental detection of configural relationships between information cues. These findings suggest that auditors' decisions may be more complex than indicated by some previous research, and that additional research is necessary to identify conditions in which auditors utilize configural processes. This study investigates the role of environmental risk factors on the configurality of audit decisions. That is, we test whether the systematic consideration of audit risk variables results in the Identification of higher order, interactive decision processes where linear relationships have previously been detected. The findings of Libby et al. (1985) and existing audit pronouncements are used to develop hypotheses regarding auditors' internal audit decisions. The hypotheses concern (1) the interactive effect of inherent risk and control strength on the extent to which auditors rely on internal audit functions to reduce planned audit work and (2) the extent to which these environmental factors affect consideration of three components of internal audit quality: objectivity, competence, and work performed. Audit managers from a Big Six accounting firm responded to a series of audit-planning cases concerning the receivables cycle of a medium-sized manufacturing firm. Inherent risk and strength of control architecture were manipulated as between-subject variables, while the objectivity, competence, and work of the internal auditors were manipulated within subjects. The results indicate that specific audit decisions are quite complex when elements of the risk environment are explicitly considered. Specifically, reliance on the internal audit function was based on a configural relationship between the levels of inherent risk and control strength. Auditors relied more on internal auditors when control architecture was strong rather than weak in conditions of high inherent risk. However, the effect of control architecture was mitigated when inherent risk was low. Also, complex relationships existed between environmental risk and task-specific components of internal audit quality. For example, auditors considered all three internal audit components when making reliance decisions in the high inherent risk and strong control strength condition, but not in certain other risk conditions. Implications of the experimental results are discussed.

This paper investigates how external auditor provision of significant nonaudit services and client pressure to use the work of internal audit influence external auditors' use of internal auditors' work. More specifically, we study how external audit evidence gathering choices are influenced by nonaudit fees and client pressure. Our research is motivated by an observation that the magnitude of nonaudit services provided to audit clients introduces the risk that client management may leverage its position with the external auditor and potentially affect the audit process. We address this issue by extending prior research and focusing on the importance of various explanatory variables, including nonaudit service revenues, client pressure, internal audit quality, and coordination, to the external auditor's decision to rely on the work of internal audit. We use data primarily obtained through surveys completed by internal and external auditors. The survey responses represent 74 separate audit engagements. Our findings reveal that when significant nonaudit services are not provided to a client, internal audit quality and the level of internal‐external auditor coordination positively affect auditors' internal audit reliance decisions. However, when the auditor provides significant nonaudit services to the client, internal audit quality and the extent of internal ‐ external auditor coordination do not significantly affect auditors' reliance decisions. Furthermore, when significant nonaudit services are provided, client pressure significantly increases the extent of internal audit reliance. Thus, external auditors appear to be more affected by client pressure and less concerned about internal audit quality and coordination when making internal audit reliance decisions at clients for whom significant nonaudit services are also provided.

Despite extensive research on the determinants of external audit fees, there is little empirical evidence on the effect of internal audit contribution on the external audit fee. Using a cross‐sectional regression model based on prior audit fee research, this study provides evidence that internal audit contribution is a significant determinant of the external audit fee. Further, a second model that provides evidence on the determinants of internal audit contribution is developed and tested. This second model indicates that internal audit contribution is influenced by internal audit quality and, conditional on the level of inherent risk, the availability of internal audit and the extent of coordination between internal and external auditors. These results are based on a unique data‐set comprised of publicly available data matched with survey responses from internal and external auditors affiliated with 70 non‐financial services Fortune 1000 firms. The sample includes all of the former “Big 6” international accounting firms and clients from twenty‐nine different industries.

Accounting decisions often involve similar types of judgments regarding different clients, projects, or employees. These tasks may use similar information items and be performed within the same work session. While independent consideration of the information for each respective decision may be desired, psychology research on contrast effects suggests that the information from a previous decision may be retained and compared to the information provided for a current judgment. Such contrast effects are potentially critical to accounting judgments because they suggest that the information associated with a given decision task will be evaluated differently depending on the nature of the prior contextual information. Using a multi-client audit context, we find that auditors are susceptible to contrast effects such that their judgments on a current client are influenced by their exposure to similar judgment information on a prior client. We also extend prior psychology and accounting research by examining and finding that for a current client, the magnitude of the contrast effect from an initial judgment task cascades to influence indirectly related subsequent judgment tasks for which no information from the prior client is available for comparison. We also find auditors' documentations of evidence are systematically affected by the contrast and cascading of contrast effects. Thus, our results provide support for contrast effects and, most important, the cascading of contrast effects to subsequent decisions.