Audit Outsourcing and Corporate Governance

1. INTRODUCTION

As corporate governance and regulatory compliance are being more emphasised worldwide in today's environment, more companies have realised the role of the internal auditing as one of the important components in corporate governance (Beckley, 2005). Besides running an internal audit department within the company, outsourcing to a third party organisation is another alternative method in obtaining the internal audit services.

Outsourcing internal audit functions has grown in popularity during the last decade (Aldhizer III, et al., 2003) and is a desirable choice for many organisations as it can bring about many promising and significant benefits to both accounting firm and client company. According to Martin and Lavine (2000), a survey in year 2000 has proven that 25% of U.S. and 31.5% of Canadian's respondents' organisations' internal audit work is outsourced and about one third of those companies which currently do not outsource the work are planning to do so in the future. The result is quite comprehensible as outsourcing internal audit services can indeed reduce a company's expense so that the company can focus on its core business competencies (Margulius, 2005 cited in Glover, et al., 2008). Martin and Lavine (2000) has also illustrated that the most common factor for outsourcing the internal audit activity as stated by the organisations was financial savings.

The purpose of this report is to give a clear illustration on the costs and benefits of outsourcing the internal audit functions of a company and the best possible solutions that could help companies to decide the best option.

2. MAIN CONTENT

2.1 ADVANTAGES

I) Cost-saving

On one side of the fence, outsourcing the internal audit functions can bring a number of obvious benefits to the client company. As mentioned earlier, companies always look forward to minimise their operating costs by cutting off the non-value-added services by outsourcing their non-core functions to a third...