Updated: Apr 30
Internal auditing was traditionally done mostly by in-house departments. This has evolved, and many companies today outsource their internal audit process entirely or partially.
To deliver an efficient and comprehensive service, modern internal audit functions include a diverse set of skills.
While an organization may only have a few internal auditors, their roles may include expertise in an increasing number of specialist skills, including IT auditing, data mining, data analytics, and (depending on the sector and size of the organization) in-depth knowledge of various regulatory regimes. Recruiting, retaining, and investing in such individuals can be challenging and costly.
To get around this issue, many companies outsource their internal auditing functions to some extent. Some smaller businesses that are mandated to provide an internal audit function by a regulatory agency or a funding covenant may choose to outsource internal audit entirely to an external contractor rather than incur the expense of hiring and training their own internal audit team.
TYPES OF INTERNAL AUDIT OUTSOURCING ARRANGEMENTS
1. Full outsourcing Where the whole function is handled by an outside provider, normally a financial accounting firm, but usually not the same firm as the organization's external auditor.
2. Partial outsourcing Where less than 100% of internal audit services are procured from outside sources.
3. Sub-contracting This is where a third party takes on a particular engagement or part of an engagement for a set period of time.
4. Co-sourcing Where the task of executing the internal audit plan is split between the core team of in-house internal auditors and an outside vendor, which is usually an accounting firm and is not the same as the external auditor. A temporary shortage of internal audit personnel combined with the need to meet tight deadlines which necessitate this form of outsourcing; special project work; perceived difficulties in hiring suitably qualified internal auditors; coverage of remote business sites; expertise shortages, especially those with experience with nascent or fast-moving technology or for reviewing compliance with new regulations.
The following are some of the advantages of outsourcing the internal audit function:
In a limited internal audit department, outsourcing may be necessary to provide adequate assurance to the audit committee and board of directors (or equivalent), especially in key risk areas requiring a high level of specialist professional expertise not available internally. This is particularly true in the case of rapidly evolving technology, where a small in-house section is essential.
Co-sourcing will benefit the organization by providing access to specialized resources, cutting-edge audit techniques and technology, and the potential for benchmarking.
Staffing assets flexibility.
The impression that the internal auditor's independence from management will be improved.
Depending on the circumstances, outsourcing internal audits can provide better value for money.
Outsourcing a portion of an internal audit process that has been in place for a long time can be beneficial.
KEY POINTS Internal audit functions are increasingly being outsourced, either fully or partially. Total outsourcing, selective outsourcing, co-sourcing, and subcontracting are all options for internal audit outsourcing.
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