Outsourcing internal audit

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A firm may decide to outsource its internal audit function as this may seem like better value for money

Advantages of Outsourcing

  1. The provider will have specialist staff.

  2. Cost of employing and training full time staff is avoided.

  3. Outsourcing provides an immediate internal audit department.

  4. The time scale is flexible with the contract lasting just for the appropriate time.

  5. Independence may be improved.

  6. Audit methodology and technologies will be up to date.

Disadvantages

  • If Internal and External audit are provided by the same firm (prohibited under ethics rules in UK) then there may be a conflict of interest.

  • Independence may not be ensured by outsourcing due to threat of management not renewing the contract.

  • The cost of outsourcing may be so high as to encourage the firm not to have an internal audit function at all.

  • Lack of understanding of firms culture, objectives and attitudes.

  • The standard of service provided cannot be controlled.

  • Blurring of the distinction between internal and external audit function.

Minimising/Managing risks of Outsourcing

  1. Setting and reviewing performance measures

  2. Quality reviews and working paper reviews

  3. Clear agreement on scope, responsibilities and reporting procedures

  4. Ensure external audit and internal audit are two separate functions.

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