Accounting Best Practices, Fifth Edition

15–12. Outsource the Internal Audit Function

Some organizations have their internal audit function report to the controller or chief financial officer. In these situations, the manager of the accounting function has the additional burden of selecting auditing targets, planning for audit teams to review them, managing the teams, and acting on their findings. For a larger organization, this management work can be a considerable additional burden, for there may be many auditors.

Though it is not possible to completely eliminate all management of the internal audit function, a controller or chief financial officer can outsource the function, which removes selected management tasks. For example, giving all internal audit work to an outside supplier keeps a manager from having to plan each audit or review the teams as they conduct their work. It still requires a manager to select audit targets and act on the results of the audits, but at least some activities have been eliminated. Using an outside auditor carries with it the additional advantage of reduced travel time to outlying company locations, since an audit firm with many locations can assign local staff to each company facility. Further, outside auditors are not paid if they are not working on company-specific projects, nor does a company have to pay for their ongoing training. These advantages have pushed a number of companies into the arms of outside auditors.

However, there are problems with this best practice that have raised ...