Related party transactions and audit fees: the role of the internal audit function
Related party transactions (RPTs) are viewed as genuine transactions that rationally fulfil other economic demands of a company.However, RPTs can also be used to transfer wealth from minority shareholders to controlling shareholders.The existence of such transactions may deteriorate financial report...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Springer International Publishing AG
2017
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| Subjects: | |
| Online Access: | https://repo.uum.edu.my/id/eprint/22352/1/JMG_21_1_26.pdf |
| _version_ | 1825804730865025024 |
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| author | Al-Dhamari, Redhwan Ahmed Al-Gamrh, Bakr Ku Ismail, Ku Nor Izah Saad @ Ismail, Samihah |
| author_facet | Al-Dhamari, Redhwan Ahmed Al-Gamrh, Bakr Ku Ismail, Ku Nor Izah Saad @ Ismail, Samihah |
| author_sort | Al-Dhamari, Redhwan Ahmed |
| collection | UUM |
| description | Related party transactions (RPTs) are viewed as genuine transactions that rationally fulfil other economic demands of a company.However, RPTs can also be used to transfer wealth from minority shareholders to controlling shareholders.The existence of such transactions may deteriorate financial reporting quality, increase audit risk, and as a result increase audit fees.This study examines the relationship between RPTs and audit fees in Malaysia, where ownership is often concentrated within a controlling family and corporate governance mechanisms are poor.It also investigates the moderating effect of the internal audit function (IAF) on this relationship.We find that external auditors base their fees on the types of RPTs undertaken. Specifically, our results show that audit fees are higher for firms that undertake RPTs involving the sale and purchase of assets, goods, and services.We also document that external auditors rely on the IAF, and thus their fees are lower for firms that undertake RPTs and that have made a large investment in an IAF. Our study is the first to provide evidence that RPTs in Malaysian firms may be abused as a channel to facilitate tunnelling and that the IAF plays a vital role in controlling such transactions. |
| first_indexed | 2024-07-04T06:20:33Z |
| format | Article |
| id | uum-22352 |
| institution | Universiti Utara Malaysia |
| language | English |
| last_indexed | 2024-07-04T06:20:33Z |
| publishDate | 2017 |
| publisher | Springer International Publishing AG |
| record_format | eprints |
| spelling | uum-223522017-06-12T00:20:02Z https://repo.uum.edu.my/id/eprint/22352/ Related party transactions and audit fees: the role of the internal audit function Al-Dhamari, Redhwan Ahmed Al-Gamrh, Bakr Ku Ismail, Ku Nor Izah Saad @ Ismail, Samihah HF5601 Accounting Related party transactions (RPTs) are viewed as genuine transactions that rationally fulfil other economic demands of a company.However, RPTs can also be used to transfer wealth from minority shareholders to controlling shareholders.The existence of such transactions may deteriorate financial reporting quality, increase audit risk, and as a result increase audit fees.This study examines the relationship between RPTs and audit fees in Malaysia, where ownership is often concentrated within a controlling family and corporate governance mechanisms are poor.It also investigates the moderating effect of the internal audit function (IAF) on this relationship.We find that external auditors base their fees on the types of RPTs undertaken. Specifically, our results show that audit fees are higher for firms that undertake RPTs involving the sale and purchase of assets, goods, and services.We also document that external auditors rely on the IAF, and thus their fees are lower for firms that undertake RPTs and that have made a large investment in an IAF. Our study is the first to provide evidence that RPTs in Malaysian firms may be abused as a channel to facilitate tunnelling and that the IAF plays a vital role in controlling such transactions. Springer International Publishing AG 2017-03-30 Article PeerReviewed application/pdf en https://repo.uum.edu.my/id/eprint/22352/1/JMG_21_1_26.pdf Al-Dhamari, Redhwan Ahmed and Al-Gamrh, Bakr and Ku Ismail, Ku Nor Izah and Saad @ Ismail, Samihah (2017) Related party transactions and audit fees: the role of the internal audit function. Journal of Management & Governance, 21. pp. 1-26. ISSN 1385-3457 http://doi.org/10.1007/s10997-017-9376-6 doi:10.1007/s10997-017-9376-6 doi:10.1007/s10997-017-9376-6 |
| spellingShingle | HF5601 Accounting Al-Dhamari, Redhwan Ahmed Al-Gamrh, Bakr Ku Ismail, Ku Nor Izah Saad @ Ismail, Samihah Related party transactions and audit fees: the role of the internal audit function |
| title | Related party transactions and audit fees: the role of the internal audit function |
| title_full | Related party transactions and audit fees: the role of the internal audit function |
| title_fullStr | Related party transactions and audit fees: the role of the internal audit function |
| title_full_unstemmed | Related party transactions and audit fees: the role of the internal audit function |
| title_short | Related party transactions and audit fees: the role of the internal audit function |
| title_sort | related party transactions and audit fees the role of the internal audit function |
| topic | HF5601 Accounting |
| url | https://repo.uum.edu.my/id/eprint/22352/1/JMG_21_1_26.pdf |
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