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Outsourcing and internal audit

2.2 Disadvantages

 Professional firms lack the intimate knowledge and understanding of the
organisation that employees have.

 Engagements with professional firms are constrained by contractual terms.
Flexibility and availability may not be as high as with an in-house function.

 Professional fees tend to be high. The decision may be based on cost with the
effectiveness of the function being reduced.

 A possible conflict of interest arises if the services are provided by the external
audit firm. The ACCA Code of Ethics prohibits external auditors of a listed
company from providing internal audit services for the same client where the
service relates to internal controls over financial reporting.

 There may be pressure on the independence of the outsourced function, for
example, if management threaten not to renew contract.

 Lack of control over the standard of service.

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