- 5 Marks
Question
As organisations look for ways to cut costs, the idea of outsourcing internal audit work goes on the agenda. While outsourcing may be appealing in theory, there are good reasons to keep internal audit in-house.
Required:
i) State TWO advantages of outsourcing the internal audit function.
ii) State THREE disadvantages of outsourcing the internal audit function.
Answer
Advantages of Outsourcing Internal Audit:
- Staff Recruitment: There is no need for the company to recruit and train its own internal audit staff. The company can instantly access a professional internal audit function by hiring the services of an accountancy firm.
- Auditor Skills: The outsourcing firm is likely to have specialists such as IT audit experts, which may be difficult to recruit in-house.
- Cost and Flexibility: The cost of an outsourced internal audit function is a variable expense, allowing companies to pay only for the time used.
- Economical for Small Entities: Outsourcing is more economical for small firms that do not have enough audit work to justify a full-time internal audit team.
Disadvantages of Outsourcing Internal Audit:
- Lack of Control: External firms are not under the direct control of the company, unlike in-house internal auditors.
- High Fees: The cost of outsourcing internal audit services can be significant, depending on the service provider.
- Limited Knowledge of Business Operations: External auditors may not have the same level of detailed knowledge of the entity and its operations as an in-house team would.
- Independence Threats: If the same firm provides both internal and external audit services, it may compromise audit independence.
- Tags: Audit Function, Business Strategy, Cost Management, Internal Audit, Outsourcing, Risk Management
- Level: Level 2
- Topic: Internal Audit and Its Relationship with External Audit
- Series: Nov 2024
- Uploader: Salamat Hamid