The main objective of external auditors is to provide an opinion on the fairness of financial report while the objective of the internal audit function

The main objective of external auditors is to provide an opinion on the fairness of financial report while the objective of the internal audit function (IAF) is determined by those charged with corporate governance and management. However, some of the methods used to achieve their objectives are similar, and some aspects of the IAF are useful in determining the external audit procedures, there is, therefore, a need for considering the effect of the IAF on the external audit procedures (IFAC, 2013a).
In fact, Endaya (2014) indicates increased calls for collaboration between internal and external auditors on the audit of financial statements. Mihret & Admassu (2011) argue that recognition of the role of IAF in enhancing financial report quality supports these calls. Schneider (2009) pinpoints the arguments behind these calls as internal auditors are involved in the organizations’ daily operations; therefore have a better understanding of the entity’s procedures, policies, business environments and its risks and controls than external auditors who conduct audits for only small part of the year. IFAC (2013b) proposed that that the IAF can inform the external auditors in the understanding of the entity and its environment, and in the identification and the assessment of risks of material misstatement in financial statements. Furthermore, effective communication between auditors creates a good atmosphere in which the internal auditor could inform the external auditor significant matters that may affect their audit work. Bame-Aldred, Brandon, Messier, Rittenberg, & Stefaniak (2013) argue that external auditors, however, need to reconcile the benefits of cooperating with internal auditors with the need to prevent dilution of the value of external audit.
International Standards on Auditing (ISA) 610 (revised in 2013) “Using the Work of Internal Auditors” prescribes the necessary quality that the IAF needs to have for the external auditors to use the work of internal auditors as audit evidence. Specifically, the IAF should be reliable on their objectivity, technical competency, and application of a systematic and disciplined approach to audit work (work performance). Thus, the decisions regarding the nature of reliance and the extent of use of IAF during an audit work need to be supported by fully understanding the strength of IAF of their client. Suwaidan & Qasim (2010) argue that this type of understanding usually undertaken during the test of controls phase in which external auditors evaluate the internal controls of their clients to ensure that they are capable of preventing and detecting material misstatement occurring
IFAC (2013a) and IIA (2012) define objectivity of IAF as the ability to perform the activities without allowing bias, conflict of interest or excessive influence of others to outweigh professional judgments. The objectivity of IAF is an important measure of IAF quality. The credibility and value of services of the IAF derived from the fundamental assumptions of objectivity and independence. Muqattash (2011) found a positive relationship between objectivity and internal audit activities. Although the ability of the IAF to apply true independence and objectivity disputed because of dependence on the auditee (Paape, 2007), standards suggest that reporting functionally to those charged with corporate governance like an audit committee enhances objectivity (IIA, 2012).
IFAC (2013a) defines competence as the achievement and maintenance of knowledge and skills of the IAF at the level required to perform the assigned activities accordance with standards. The competence of IAF comprises both qualifications of internal auditors and resources (Ramachandran, Subramanian, & Kisoka, 2012). It has been found that that the IAF with experience and expertise in auditing provide a more valuable contribution toward improving the internal controls of the organization and have the ability to identify unethical behavior more than those with no experience (Mohamed et al., 2012).
Bame-Aldred et al., (2013) argue that the application of a systematic and disciplined approach stated in ISA 610 (revised in 2013) means work performance. The work performance includes performing activities related to risk management (IIA, 2012). Studies by Ramasawmy & Ramen, (2012): Mihret & Admassu, (2011) and Suwaidan & Qasim, (2010) have found external auditors gave full importance to work performance when evaluating the IAF quality. Ramachandran et al., (2012) concluded that IAFs that do not carry out risk management activities do not add value to the organization and are considered ineffective.
The climax of the reliance process is a decision on the degree of nature and the extent of reliance on IAF (Bame-Aldred et al., (2013). The nature and extent of use of the IAF depend on the quality of IAF (IFAC, 2013a). The nature of reliance comprises the audit works relied on by external auditors, for instance, risk management activities testing balances or transactions, and the test of controls (Munro & Stewart, 2011). The extent of reliance implies using audit work already performed by IAF in obtaining audit evidence or using Internal Auditors to provide direct assistance under the control of external auditors (IFAC, 2013a).
The extant studies that have examined the impact of the quality of IAF on the reliance of external auditors on IAF suggest that external auditors do use the IAF (Razek, 2014; Ramasawmy & Ramen, 2012; Mihret & Admassu, 2011; Suwaidan & Qasim, 2010 & Felix et al., 2001). However, the results and factors that considered during the evaluation of the IAF quality have varied from one study to another. Little evidence is available to explain the degree the external auditors use the IAF in Tanzania.
Management invests in the IAF to help to enhance corporate governance, so it expects maximum benefits from it (Suwaidan & Qasim, 2010). As a result of increased investment in the IAF, competency and scope of work have increased, management has thought there is a repetition of audit work (Ho & Hutchinson, 2010) and therefore sought ways of reducing external audit work by substituting for internal audit work (Schneider, 2009). Thus, the use of IAF could reduce external audit time (Fowzia, 2010), increase audit efficiency and reduce audit fees (Naser, Al Kandari, Al- Mutairi, & Nuseibeh, 2013 & Azad, 2017).
Audit fees are of interest to the clients and external auditors, as they represent agency costs to the client firms as well as a reputation of audit services quality to the external auditors (Amba & Al-Hajeri, 2013). Accordingly, the law in Tanzania requires entities to have their accounts audited at reasonable audit fees (URT, 1994) and disclosed in the final accounts (URT, 2002). However, the literature suggests that audit risk drives audit fees, e.g. auditors may charge a higher fee for high audit risk, and that strong internal controls reduce the risk and therefore reduces the labour intensive and time-consuming substantive testing (Hall, 2011). So, audit fees should reflect the cost of the effort of the auditors (Suseno, 2013) and values of work done by the external auditors (Hall, 2011).
Audit fees are charged based on the estimated hours or days to be spent by each member of the team required for the audit and include any travel and other expenses to be incurred during the audit (ACCA, 2010). Audit fees, however, are negotiable, as audit work perceived to have a fluctuating market price as any other commodity or service, and a company can legitimately reduce the audit fees by strengthening the quality of IAF (ACCA, 2010).
Studies that have explored the influence of IAF quality on audit fees indicate mixed findings. Some studies suggest that IAF and external auditing substitute for each other, so that better IAF will be associated with lower audit fees (Felix et al., 2001; Sarkar et al, 2009; Ho & Hutchinson, 2010; Mohamed et al., 2012; Wu, 2012; Naser et al., 2013; Abbas & Aleqab, 2013; Chan et al., 2013 and Razek, 2014). In contrast, other studies advocate that the interaction between IAF and external audit are complementary controls and that improved IAF is associated with higher audit fees (Goodwin-Stewart & Kent, 2006; Hay et al., 2008; Yasin & Nelson, 2012 and Oktorina & Wedari, 2015). However, some studies have found an insignificant link between them (Suwaidan & Qasim, 2010 and Saidin, 2014). There is little evidence on whether the quality of IAF contributes to the determination of audit fees in the context of Tanzania.
Previous studies have also extensively documented the size, complexity and risk of the auditee as determinants of audit fees (Beattie et al., 2001; Firer & Swartz, 2006; Gonthier-Besacier & Schatt, 2007; Meshari, 2008; Suwaidan & Qasim, 2010; Hassan & Naser, 2013; Soyemi & Olowookere, 2013; Zain et al., 2015; and Kikhia, 2015). Although these factors have the impact on audit fees determination, they are not the focus of current research, but the current study includes them as control variables.
The companies listed on the Dar es Salaam Stock Exchange (DSE) pull capital from investors around Tanzania, therefore have huge public interest. Many business failures usually associated with mismanagement and poor auditing. In recognition of the needs to protect the interest of shareholders, the CMSA (2002) has issued guidelines for good governance in corporate performance requiring all listed companies to maintain a sound system of internal control, including having a sound IAF. However, many factors affect the practices of IAF, the Institute of Internal Auditors (2012) posits that internal auditing is conducted in varied legal and cultural environments; within organizations that vary in purpose, size, complexity, and structure; and by persons within or outside the organization and these differences may affect the practice of internal auditing in each environment.
Despite being required to have strong IAF by law, Ramachandran et al., (2012) concluded that the IAFs of commercial banks in Tanzania were ineffective. They argued that the IAFs existed because of legal compliance requirement rather than adding value to the commercial banks. They proposed a look at the effectiveness of the IAF at other sectors. The view that an IAF is an added-value function comes from the Institute Internal Auditors (2012) which defines internal auditing as “An independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes”. Moreover, the delisting of National Investment Company Ltd in 2011 because of failure to submit audited financial statements and the fact that some commercial banks are listed companies casts further doubt about the effectiveness of IAFs and therefore warrant a need to look at the contribution of IAF of listed companies in Tanzania

6.2 Statement of the Problem
Despite extensive research on the contribution of IAFs in the organisations in other countries, little evidence exists about the effect the IAFs have on the reliance of external auditors on the IAF and on audit fees in Tanzania. Thus, this study seeks to cover this gap. This study is important to listed companies as it attempts to determine the contribution of IAFs.
6.3 Objective of the Study
The main objective of this study is to assess the impact the IAF quality has on the reliance of external auditors on the IAF and on audit fees. The specific objectives are:
6.3.1 To assess the effect that the IAF quality has on reliance on IAF,
6.3.2 To examine the influence that the IAF quality has on audit fees.
6.4 Research Questions
6.4.1 What effect the IAF Quality has on reliance on the IAF?
6.4.2 What influence the IAF quality has on external audit fees?
6.5 Significance of the Study
The contributions of this study are: first, contribution to the extant literature on the use of IAF by external auditors. There are little studies that have examined this audit practice in Tanzania environments. Second, contribution to auditing standards, the results obtained from this research will be useful to standard setters. This study adds knowledge of how or the extent this audit practice exercised in Tanzania. Third, the practitioners will be informed the contribution of IAF.

6.6 Literature Review
6.6.1 Theoretical Literature Review
The agency theory is a good theoretical foundation in explaining corporate governance and its practices, particularly the contracting relationship between parties of corporate governance and its consequences. The agency theory underpins this study while signaling and substitution theories support the agency theory. Agency Theory
Agency theory examines the agency relationship and the issues that arise from it, particularly the dilemma that the principal and agent may not always share the same interests. The theory was developed by two independent scholars. The first is Stephen Ross who proposed the economic theory of agency in 1972 – the study of agency in terms of problems of compensation contracting; in which the agent was seen as an incentives problem. Ross, (1973) laid a model for inducing the agent to produce maximum gains for the principal. The second is Barry Mitnick who proposed the institutional theory of agency in 1973 – study about the insight that institutions are formed around the agency, and evolved to deal with the agency, in response to the essential imperfection of agency relationships (Mitnick, 1973, 2006).
While using the agency theory, Adams (1994) argues that an entity consists of the relationship of contracts between the owners of resources and the managers who are entrusted with using and controlling resources. As a result, Lee (2014) points out that management will have more knowledge about the organization than the owners; thus, the owners of resources have information asymmetry which affects their ability to effectively monitor management. According to Ross (1973), there exists a dilemma that the owners and managers may not share the same interests. Thus, the owners think that their businesses are at risk and that managers may supply fraudulent financial reports (Gray & Manson, 2000). To ensure that the owners’ interests are served, Adams, (1994) contends that the shareholders incur agency costs for hiring external auditors in order to align the management and the management correspondently incur costs for investing on IAF signaling to the shareholders that their interests in the businesses are protected. Signaling Theory
The signaling theory was proposed by Michael Spence in 1973 and it evolved from the idea of information symmetry. The theory can be used to examine communication between individuals in various aspects such as communication in a labour market (Spence, 1973). Spence used the theory to demonstrate the behavior of employees in the labour market in terms of education level. He argues that the education level of the job applicant is a credible signal of his underlying competence and that employees will signal their abilities to the employer in order to receive benefits. In other words, the theory predicts that productivity and wages increase with education level. Therefore, it could be argued that all employees may use reliable characteristics as a signal of work quality or performance so as to receive higher pay. For instance, Hay et al, (2008) argue that the presence of a strong IAF signals greater commitment by the firm to stronger corporate governance and willingness to pay more for higher quality external audit. Substitution Theory
The theory of substitution originates from penal substitution biblical doctrine, the view that Christ died on behalf of sinners (Vlach, 2009). This theory may also be used on other perspectives. In the context of external auditors’ reliance on IAF, Substitution theory holds that the more perfect the internal corporate governance structure of organisations the lower the agency costs (Wu, 2012), because one player of governance mechanism will substitute for the other (Bouaicha, 2015), thus the external auditors will encounter fewer risks and therefore lower the audit work and fee that will be charged (Wu, 2012). In this case, external audit is regarded as an external player of corporate governance mechanism which may substitute its audit work to some degree with effective IAF, the internal player of the corporate governance.
6.6.2 Empirical Literature Review & Hypotheses Development The Effect of IAF Quality on External Auditors’ Reliance on the IAF
This section reviews studies that have examined the factors used by external auditors when evaluating the strength of IAF and the level the external auditors use the IAF.
Azad, (2017) examined the degree of reliance of external auditors on IAF in the United Arab Emirates. The study had predicted that during the conduct of an independent audit of financial statements, the firms rely on the work performed by IAF of the client. However, using One-sample T-test analysis the study found that for the most part, external auditors do not use the IAF during the audit of financial statements. The study also revealed that independence of IAF was the most significant condition to facilitate the reliance and the most suitable area for reliance was the evaluation of internal control system.
Razek (2014) investigated the association between internal audit quality and external costs. The study surveyed 20 external auditors in Cairo and developed a framework for evaluating the internal audit quality based on Egyptian auditing standard decree 166 issued in 2008 which was consistent with ISA 610. The IAF quality framework was evaluated using internal audit status, objectivity, competence, the scope of work and due professional care, and found that all factors were determinants of the quality of IAF.
Ramachandran, et al (2012) examined the effectiveness of IAF in commercial banks in Tanzania. The study identified internal audit resources and competencies, internal audit activities (risk management) and the extent of interaction of internal auditors with audit committee as factors for measuring the effectiveness of IAF. The study surveyed a total of 81 respondents from internal auditors, line managers, members of the management team, audit committee members and external auditors of selected bank using a five-point Likert-scale questionnaire. Using the regression analysis, the study found a positive relationship between both internal audit resources and competencies and interaction of internal auditors with the audit committee and internal audit effectiveness, but not a significant relationship with internal audit activities. The finding implied that the level of involvement of IAF in risks management activities was not significant. The study concluded that the IAFs were based on the traditional approach, which is concerned with compliance with regulations and monitoring rather than adding value.
In a study on an evaluation on how external auditors can benefit from the good working relationship with internal auditors for audit in Bangkok, Ramasawmy & Ramen, (2012) assessed factors which external auditors consider before using the IAF. A questionnaire survey study consists of five-points Likert scale targeted 35 external auditors who audited companies which have IAF was used. An independent sample T-Test was used to aid to assess the perceptions of external auditors about IAF based on objectivity, competence, and work performance. The study found that the external auditors give full importance to the internal auditors’ objectivity, competence, and work performance before relying on internal audit.
Mihret & Admassu, (2011) examined the reliance of external auditors on internal audit work in Ethiopia. A questionnaire survey study consists of five-point Likert scale targeted 119 external auditors who had clients that maintained internal audit. Using the multiple discriminant analysis the study indicated that internal audit work performance was the most important factor that influences the extent of external auditors’ reliance on internal audit work.
In the study of external auditors’ reliance on the IAF in Australia, Munro & Stewart, (2010) examined the impact of internal audit sourcing and internal audit’s involvement in consulting activities on external auditors’ reliance on the IAF. The study used an experiment to manipulate whether or not internal audit performs a systems consulting role with respect to the company’s financial system, and the internal audit sourcing arrangement was manipulated as being in-house or outsourced to a specialist provider. The findings indicated that internal audit’s involvement in consulting activities induced external auditors’ decision to rely on IAF, and that external auditors relied on work already undertaken by internal auditors as well as the use of internal auditors as assistants for tests of controls but not for substantive testing. In another study, Munro & Stewart, (2011) found that IAF’s strong reporting relationship with AC has an impact on external auditors’ reliance on the work of IAF. Consistent with Munro & Stewart, (2010), the study found that external auditors relied not only on work already performed by internal auditors but also using them as the assistant. It also indicated that external auditors were using IAF more for tests of control than for substantive testing.
Suwaidan & Qasim, (2010) investigated the Jordanian external auditors on how they perceived the importance of the number of factors based on ISA 610 when deciding their reliance on IAF during an external audit. The questionnaires to a sample of 100 external auditors were used. The findings of the study indicated that external auditors in Jordan relied on IAF of their client and they mostly valued objectivity of IAF, followed by competence and work performance when evaluating the IAF of their client. The study also examined the extent of external auditors’ reliance on IAF and found that external auditors relied on the work performed by internal auditors. The study, however, could not explain the actual works that were relied.
Felix et al, (2001) examined the factors that influenced the IAF contribution to the financial statement audit in the USA. Using a cross-sectional regression model, the study found that the significant factors were the availability of IAF to perform the financial statements audit and IAF quality. The results indicated that the greater the availability of internal auditors, the greater the contribution the internal auditors made to the financial statement audit.and the overall IAF quality increased the extent of contribution to the financial statement audit. The study could not explain the factors that were used to evaluate the IAF quality, rather it looked at the quality of IAF in overall terms. Moreover, the study investigated the contribution of IAF to the financial statement audit through work performed by internal auditors and internal auditors working as assistants to external auditors, and external auditors relied on the internal controls system.
Studies in relation to external auditors’ reliance on the IAF suggest that external auditors rely on the IAF after evaluating it (Felix et al, 2001; Suwaidan & Qasim, 2010; Munro & Stewart, 2010, 2011 and Razek, 2014). The implication of these studies is that the quality of IAF influences the external auditors’ determination of the nature and extent of use of the work of the IAF. The study, therefore, hypothesizes that:
H1: The IAF quality has a positive effect on external auditors’ the reliance on IAF. The Influence of quality of IAF on Audit Fees
This section review studies that have examined the relationship between internal audit function (IAF) quality and external audit fees.
Felix et al, (2001) investigated the contribution of the IAF on the determination of audit fees in the USA. The study used data from a survey which were matched with data from financial information, the cross-sectional regression model was utilized to examine the data. The findings indicated that the IAF contribution (as determined by IAF Quality and availability of internal auditors to perform the audit) to the audit of financial statements was a significant determinant of audit fees and that the greater the IAF contribution the lower the audit fees.
Suwaidan & Qasim (2010) investigated the external auditors’ reliance on the IAF quality and its impacts on audit fees in Jordan. The study used the cross-sectional multiple regression analysis to examine the impact that IAF quality has on audit fees. The results indicated that the external auditors in Jordan rely on the work already performed by auditors after evaluating the IAF quality, though reliance on IAF has no effects on audit fees.
Ho & Hutchinson, (2010) examined the association of the internal audit characteristics and activities and audit fees in Hong Kong, their result suggested that external auditors relied on IAF and subsequently charged a lower fee. The lower external audit fees were associated with a larger internal audit department and activities carried out by internal audit e.g. internal audit effort spent on activities relating to financial statements.
Yasin & Nelson, (2012) studied the association between IAF characteristics and audit fees in Malaysian listed companies, from the perspective where the audit committee demand high audit quality and effort. Findings indicated a positive relationship between audit fees and IAF size. In contrast, Zain, Zaman, & Mohamed, (2015) investigated the effect of IAF quality and internal audit contribution to audit fees in the same country. The results suggested that higher IAF quality induced greater external auditors’ reliance on the work of internal auditors and thus reduced external audit fees.
In Egypt, Abbas & Aleqab, (2013) examined the relationship between internal auditors’ characteristics and the audit fees. The results showed that internal auditors’ attributes were determinants of reliance on IAF and that external auditors reduced audit effort and audit fees. The results suggested that lower audit fees were associated with top management support for IAF (i.e. ready to act on findings and recommendations of the IAF, internal auditors’ adequacy education, adequacy of working paper documentation supporting internal auditors’ conclusions and sufficiency of internal auditors’ evidence). These findings were consistent with Razek, (2014) who studied the association of IAF quality and external audit costs in Cairo and saw decreased audit work (i.e. audit procedure and testing) which in turns reduced audit hours, audit effort and thus lowered external audit fee.
Saidin (2014) examined the perceptions of internal and external auditors to determine whether reliance of external auditors on the work of internal auditors reduces external audit work and audit fees in UK local authorities. On the first perspective, findings indicated that internal auditors perceived that the external auditors’ reliance on the work of internal audit had no effect on the audit fees even though it reduced external audit work. On the second perspective, findings showed that external auditors perceived the external auditors’ reliance on the function of internal audit has no effect on both external audit fees and external audit work. The results showed inconsistent opinions between the external and internal auditors on the reduction of audit work but showed the same views on the reduction of audit fees. Saidin (2014) concluded that the reliance on internal audit work had no much effect on external audit work and audit fee, but it helped to minimize increases in external audit fees.
Wu, (2012) argues that companies signaling strong corporate governance will normally require a more intensive external audit, as a result, pay higher audit fees. Mohamed et al, (2012) support the rationale for the proposed positive association that increased internal control initiatives are seen to reflect a management attitude that values higher-quality corporate governance and such initiatives will also then demand better or more external audit services which in turn will result in higher audit fees. This contrasts with the substitution view which suggests an inverse relationship between the IAF quality and external audit fees. For instance, Razek, (2014) argues that internal audit quality would encourage external auditors’ reliance on such internal audit, thus reducing duplication of audit work, leading to potential costs saving.
Although Prawitt et al (2011) argue that many of the studies that investigated the association between audit fees and IAF quality have assumed that audit fees substitute for external auditors effort. However, prior studies that have assessed the direction of the relationship between the IAF quality and audit fees suggest varied findings. For instance, Felix et al, (2001); Ho & Hutchinson, (2010); Mohamed et al, (2012); Wu, (2012); Naser et al, (2013); Abbas & Aleqab, (2013) and Razek, (2014) found negative association, Goodwin-Stewart & Kent, (2006) and Yasin & Nelson, (2012) documented positive connection while Suwaidan & Qasim, (2010) and (Saidin, 2014) found no link between them. This study believes that an effective IAF is likely to decrease the risk of material misstatement and therefore reduce the external audit work. This could be assumed that part of the cost saving resulting from the external auditors’ reliance on IAF will be benefited by the clients. The study hypothesizes that:
H2: The IAF quality has an impact on the external audit fees. Determinants of Audit Fees
The studies suggest varieties of audit fees determinants other than reliance on the IAF. This study reviews several factors. However, only three factors proposed by many studies will be considered by this study. These are client’s size, client’s complexity, and client’s risk.
Beattie et al (2001) examined the determinants of audit fees for voluntary sector entities in the UK and found that the size of the auditee, organizational complexity, and audit firm location were the major factors while in French by Gonthier-Besacier & Schatt (2007) revealed that audit fees depended on the firm size and firm risk. Zain, et al, (2015) found that audit fees in Malaysia were influenced by the client size, number of subsidiaries, and audit tenure.
Suwaidan & Qasim, (2010) revealed that the external auditors’ reliance on IAF had no impact on the audit fees in Jordan, but found that the client’s size was an important factor. In the same country, Kikhia, (2015) examined various determinants of audit fees. The result indicated that auditee size, the auditee complexity, auditee risk, profitability, and industry type were the audit fees determinants, but audit tenure was not an audit fees determinant.
In Kuwait, Meshari, (2008) determined the effect of client size, client complexity, client risk and the auditor size on external audit fees, and found that the audit fees were significantly influenced by client size, liquidity ratio, and profitability ratio, and that audit fees were not influenced by the number of audit locations or the auditor size. However, the study by Hassan & Naser, (2013) in the United Arab Emirates (UAE) revealed that the audit fees were significantly positively associated with the following determinants: the size of the client, business complexity, and audit report lag variables.
Soyemi & Olowookere, (2013) examined the size of the entity, complexity of the client, and risk of the client in Nigeria whether were audit fees determinants. The result revealed that the bank size and the complexity of the client were audit fees determining factors, while in South Africa, Firer & Swartz, (2006) examined the auditee size, risk, complexity, agency theory, and size of audit firm with the view of establishing whether they were components on determining audit fees, the finding found that all were audit fees determinants.
Prior studies in relation to factors that determine audit fees, factors other than reliance on IAF, have documented clients’ size, clients’ business complexity and auditees’ risk to be positively related to audit fees (Beattie et al, 2001; Firer & Swartz, 2006; Gonthier-Besacier & Schatt, 2007; Meshari, 2008; Suwaidan & Qasim, 2010; Hassan & Naser, 2013; Soyemi & Olowookere, 2013; Zain et al, 2015; and Kikhia, 2015). The clients’ size, clients’ business complexity, and auditees’ risk are included in this study as control variables. The Conceptual Framework
The conceptual framework of this study is shown in Figure 1. This framework depicts that external auditors’ decision to rely on the internal audit work begins by assessing the quality of IAF in terms of competency, objectivity and work performance. When the external auditors are satisfied with the quality of internal audit function, external auditors consider the nature and the extent of reliance decision. The other observable effects of external auditors’ decisions to rely on IAF is audit fees. The assumption is that audit effort substitutes for external auditors fees.

Independent variable Dependent variable

Figure 1: Research conceptual framework
Source: Synthesized from literature

7.0 Research Methodology
7.1 Research Philosophy
The research philosophy of this study is positivism because it formulates and tests hypotheses. This comes from Saunders et al, (2009) who contend that positivism approach involves developing the hypothesis, collecting data from samples and testing to confirm or refute the hypothesis.

7.2 Research Design
This research will follow deduction research. According to Saunders et al (2009), a research could use deduction or induction or both. The deduction research is related to positivism. It assumes a testable proposition about the relationship between two or more variables (Robson, 2002). The hypothesis in the deduction research is formulated in advance and then tested to see the extent is supported by the practical experience (Johns & Lee-Ross, 1998).
The research could either be a quantitative research or a qualitative research or both. Saunders, et al (2009) argue that a deduction research describes the causal relationships between variables, and normally involves a collection of quantitative data and analysis, the application of control to ensure the validity of data, and entails choice of adequate sample size in order to generalize conclusions. While Mills, (2011) argues that quantitative research is the collection and analysis of numerical data to describe, explain, predict or control phenomena of interest. This study will use quantitative methods to analyze the gathered data.
Quantitative methods are normally associated with survey method of collecting information (Creswell, 2009). The survey is associated with deductive approach that includes cross-sectional researches using questionnaire or structured interview to collect data, and makes generalizations from a sample to a population (Saunders et al, 2009 and Creswell, 2009), and cross-sectional studies are for phenomena or explain the relationship of factors at a given point in time (Saunders et al, 2009). This research will employ cross-sectional survey strategy

7.3 Population and Sample of the Study
The external auditors are the population of this study. There are 197 registered audit firms in Tanzania (NBAA, 2017). An audit work is performed by a team of employees from the audit firm (Udeh, 2015). An audit work may be performed by audit team consists of audit partner, audit manager, audit senior, and audit staff (Cameran, Ditillo, & Pettinicchio, 2017) and specialists (Muczyk, Smith, & Davis, 1986). Currently, there are 26 listed companies, 21 firms will be included in the study.
The sample of the study will be chosen based on audit firms audited the 21 listed companies during the year 2015. The sample will, therefore, comprise five (5) auditors from each audit firm team who will provide respond for each IAF of listed firms; a sample 105 external auditors will, therefore, be used. The study will also utilize financial statements audited during the year 2015. The financial statements are publicly available from listed companies.
7.4 Data Type and Collection Methods
This study will use both primary and secondary data. The primary data of this research will come from external auditors using a survey questionnaire. The questionnaire will be self-administered and delivered by hand to each respondent. The questions in the questionnaire will include closed and open questions. The secondary data will be extracted from the annual reports of the companies listed in Dar es Salaam Stock Exchange (DSE) and other publications.
7.5 Goodness of Measures
Reliability and validity enhance the credibility of the research findings, therefore focusing on reliability and validity of data measurements during research design reduces wrong answers (Saunders et al, 2009). Good measurements of data give the same outcome each time they are used regardless who does the measuring (Granziano & Raulin, 2000). Reliability is prerequisite to validity (Mitchell & Jolley, 2004) and they both measure the goodness of measures.

7.5.1 Reliability of the Instrument
Reliability indicates consistency, that is, the extent to which the data collection techniques or analysis procedures yield consistent findings and that whether such measures will yield the same results on other occasions and whether another observer will reach the similar observations. Internal consistency assesses the reliability. It involves correlating the responses to each question in the questionnaire with other questions in the questionnaire, therefore measuring the consistency of responses to all questions (Saunders et al, 2009).
Internal consistency reliability is high if each of the items or observations correlates with the other observations, that is, if all of the items are measuring the same thing (Granziano & Raulin, 2000). The internal consistency can be measured with the Cronbach’s alpha (Saunders et al, 2009). The Cronbach’s alpha value ranges from 0 to 1. A value from 0.7 and above indicates high reliability (Pallant, 2007).
7.5.2 Validity of the Instrument
Validity is concerned with whether the findings are really about what they appear to be about. Internal validity in relation to questionnaires is the ability of the questionnaire to measure what is intended, that is the questionnaire actually represents the reality of what is measured. The validity of questionnaire normally refers to content validity: the extent to which the measurement questions in the questionnaire provide adequate coverage of the investigative questions, predictive validity: the ability of the measures (questions) to make accurate predictions, and construct validity: the extent to which the measurement questions actually measure the presence of the construct intended to be measured. The sufficient coverage of question in the questionnaire can be made by use of discussion of a panel of the individual (Saunders et al, 2009). This research will assess validity through content validity. The questionnaire will be discussed with the supervisor of the research, and a pilot questionnaire will be sent to some experienced external auditors to help enhance the understandability of the questions in the questionnaire.
7.6 Data Management and Analysis Tools
The data of this research will be collected, managed and analyzed through the Statistical Package for Social Sciences (SPSS). The study will use descriptive and inferential statistics to analyze the data in order to address objectives and hypotheses. A multiple regression analysis will be used to test the hypotheses.
7.6.1 Multiple Regression Analysis
This study uses the multiple regression analysis to test the hypotheses as is regarded as a neutral way of assessing the extent and character of the relationship between the predicting variables and a criterion variable (Sekaran & Bougie, 2010). A regression coefficient indicates the significance of each of the independent variable in relation to changes in the dependent variable. Sekaran & Bougie (2010) affirmed that when independent variables are regressed to explain the variance in the dependent variable, the size of each of the individual regression coefficient shows how much an increase in one unit in the individual independent variable affects the dependent variable. Several studies have applied the multiple regression analysis (Felix et al, 2001; Suwaidan & Qasim, 2010; Ramachandran et al., 2012).

7.6.2 Regression Model Specification
This study will employ the following regression models for testing hypotheses. The variables are elaborated on the Operationalisation of the research. Model 1
This model is modified from (Felix et al, 2001). It will be used to test the first hypothesis in order to examine the association between IAF quality and the extent of reliance of IAF. This will also be used to achieve the first objective.
RELAF = ?0 + ?1COMPE + ?2WORKP + ?3 OBJEC + ? Model 2
This model is also modified from (Felix et al, 2001). It will be used to test the second hypothesis in order to determine the effect of IAF quality on audit fees. This will be used to achieve the second objective.
ADFEES = ?0 + ?1COMPE + ?2WORKP + ?3 OBJEC + ?4ADSIZE + ?5ADRISK + ?6ADCMPLX + ?