AN INVESTIGATION OF THE EFFECT OF A FAVORABLE EXTERNAL QUALITY ASSURANCE REVIEW ON THE SCOPE OF THE EXTERNAL AUDITOR'S EXAMINATION OF AN ORGANIZATION'S FINANCIAL STATEMENTS (FAVORABLE REVIEW)

The review team that performs an external quality assurance review of an organization's internal audit department examines factors that are very similar to those considered by the external auditor as part of the evaluation of the department. The purpose of the study was to explore the possibility that an external auditor would modify the scope of the audit work when an organization's internal audit department had received a favorable external quality assurance review. In addition, the study investigated the effect that the type of reviewer who performs an external review has on the scope of the external auditor's work.; Data with which to achieve the purposes of the study were obtained by sending questionnaires to audit partners, managers, and seniors working for Big 7 firms in twelve of the twenty largest United States cities. Analysis of the data revealed that the effect of a favorable external quality assurance review is generally limited to a statistically significant but immaterial reduction in the number of hours budgeted by the external auditor for the evaluation of the internal audit department. The data analysis also indicated that, in general, the type of reviewer who performs a favorable external quality assurance review has no effect on the external auditor's development of a time budget for the audit of an organization's financial statements.