This memo offers an overview of the impact of outsourcing the internal audit function by most corporations.
Impacts of outsourcing internal audit function
INTRODUCTION
The last decade has been characterized by the growth of accounting firms’ consulting and assurance practices by over 20% per annum. Albeit most of the large corporations have sold their consulting divisions, one of the fastest growing assurance services for the accounting firms has been internal audit outsourcing (Swinkels 64). The Institute of Internal Auditors believes that the revenues that an audit firm generates from internal audit services is estimated to be up to 10 times that of the annual financial statements audits (Cascarino 195).
POSITIVE IMPACTS
For the organization, the idea of outsourcing internal audit services has numerous advantages. The process enables the firm to attain a higher level of efficiency and reduce cost since the outsourcing company needs to be efficient so as to quote a price that is competitive. Also, the firm will take advantage of the economies of scale as they tend to specialize in internal audits (Cascarino 196). The company gets access to the latest technologies /software for auditing without incurring further costs (Swinkels 67).
The outsourcing firm gets access to a broad range of expertise and experience that would otherwise be hard to obtain internally. The staffs in the audit firm receive versatile exposure to audit due to their engagement in the audit of various organizations with varied nature of operations. Also, outsourcing may result in the improvement of the independence of the verification function (Pickett 782).
The outsourcing of internal audit has the benefit of helping the management in saving the time that would otherwise be spent on managing the audit department. The risk of employee turnover is passed to the outsourcing firm (Swinkels 66). The process also helps the entity to cut on costs associated with training of workers on principles, methods and techniques of internal audits
ADVERSE IMPACTS
The process may sometimes be counterproductive as the line between external audit, and internal audit may become blurred. In some countries, the ethics legislation prohibits the engagement of external auditors for internal audit services (Pickett 786). Also, the independence of the audit may be in jeopardy if the management unduly influences the external audit firm.
The practice present the risk that the audit firm whose services have been outsourced may be ignorant of the culture of the organization, its objectives, and nature of business. Other risks involve the fact that outsourcing decisions in most cases are based on costs and ignorant of the possibility of the function being adversely affected (Cascarino198).
Outsourcing of audit services may also result in the flexibility and availability of the audit personnel being adversely affected the lack of control over the audit staff may lead to low standards (Pickett 783). Similarly, it is almost impossible to ascertain whether or not an accounting firm will assess the internal control diligently.
CONCLUSION
Outsourcing has impacts on both the corporations and the accounting firms. A key interview Dwayne Curtis, an employee of P &G, reveals that unlike in the usual situation, the personal relationships between the employee and the reporting authority do not interfere with the audit process. An internal auditor in the payroll of a company might feel reluctant to provide information on the shortcomings of a colleague. Such situations make outsourcing attractive to management (Pickett 782).
Works cited
Cascarino, Richard. Internal Auditing. 2015. Print.
Pickett, K. H. Spencer. The Internal Auditing Handbook. Hoboken, N.J.: Wiley, 2013. Print.
Swinkels, W. H. A. Exploration Of A Theory Of Internal Audit. Delft: Eburon, 2012. Print
