The impact of decisions to outsource the internal audit function in South Africa

Abstract

Organisations are constantly striving to maximise shareholder wealth by improving the effectiveness and efficiency of operations. Since the early 1980s, there has been an emerging trend to outsource functions considered to be non-core. These trends have now moved into the internal audit sphere, a function that was previously maintained in-house. Using survey data collected from organisations in the South African private and public sectors, the degree of internal audit outsourcing, the rationale behind organisations’ outsourcing decisions, the types of internal audit services provider, the perceived status of in-house internal auditing and perceptions of independence of outsourced internal audit functions were determined. It was noteworthy that no significant differences were observed between sectors with regard to interaction with external auditors and threats to independence. The biggest difference appears to be that private companies chose a “Big 4” accounting firm more often than the government sector did. This study contributes to the existing body of knowledge and bridges the gap between theory and practice by highlighting the impact that the decision to outsource has had on the South African internal audit function.