（2005）The Influence of Nonaudit Service Revenues and Client Pressure on External Auditors Decisions to Rely on Internal Audit.pdfVIP

The Influence of Nonaudit Service Revenues and Client Pressure on External Auditors Decisions to Rely on Intemal Audit* WILLIAM L. FELIX JR., University of Arizona AUDREY A. GRAMLING, Georgia State University MARIO J. MALETTA, Northeastern University Abstract This paper investigates how external auditor provision of significant nonaudit services and client pressure to use the work of intemal audit influence external auditors use of intemal auditors work. More specifically, we study how extemal audit evidence gathering choices are influenced by nonaudit fees and client pressure. Our research is motivated by an obser- vation that the magnitude of nonaudit services provided to audit clients introduces the risk that client management may leverage its position with the extemal 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, intemal audit quality, and coordination, to the extemal auditors decision to rely on the work of intemal audit. We use data primarily obtained through surveys completed by intemal and extemal auditors . The survey responses represent 74 separate audit engage- ments. Our findings reveal that when significant nonaudit services are not provided to a client, intemal audit quality and the level of intemal-extemal auditor coordination positively affect auditors intemal audit reliance decisions. However, when the auditor provides significant nonaudit services to the client, intemal audit quality and the extent of intemal-extemal auditor coordination do not significantly affect auditors reliance decisions . Furthermore, when significant nonaudit services are provided, client pressure significantly increases the extent of int