Related party transactions and audit fees: the role of the internal audit function
Redhwan Ahmed Al-Dhamari,
Ku Nor Izah Ku Ismail and
Samihah Saad Haji Ismail
Additional contact information
Redhwan Ahmed Al-Dhamari: Universiti Utara Malaysia (UUM)
Ku Nor Izah Ku Ismail: Universiti Utara Malaysia (UUM)
Samihah Saad Haji Ismail: Universiti Utara Malaysia (UUM)
Journal of Management & Governance, 2018, vol. 22, issue 1, No 9, 187-212
Abstract 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.
Keywords: Audit fees; Related party transactions; Internal audit; Malaysia (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s10997-017-9376-6 Abstract (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:jmgtgv:v:22:y:2018:i:1:d:10.1007_s10997-017-9376-6
Ordering information: This journal article can be ordered from
http://www.springer. ... 29/journal/10997/PS2
Access Statistics for this article
Journal of Management & Governance is currently edited by Lino Cinquini
More articles in Journal of Management & Governance from Springer, Accademia Italiana di Economia Aziendale (AIDEA) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().