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ACCA Strategic Professional · Strategic Business Leader · Management and internal control systems

Zenith Logistics Ltd is considering outsourcing its internal audit function to a firm of accountants. Management wants specialist IT audit skills and flexibility in resourcing. Which is the most significant risk the board should manage if it outsources?

The main risk of outsourcing internal audit is that the external provider may lack in-depth knowledge of the company's culture and operations and be less continuously available. Scope can be contractually defined, and the audit committee still reviews reports; risk management remains the board's duty.

  1. AThe outsourced provider cannot be given a formal scope of work
  2. BThe provider may lack detailed knowledge of the company's culture and operations, and may be unavailable for ongoing monitoringCorrect
  3. COutsourcing automatically prevents the audit committee from reviewing audit reports
  4. DOutsourcing means the company no longer needs any risk management system

Explanation

Outsourcing brings specialist skills and flexibility but risks reduced organisational knowledge, less continuous presence and potential conflicts if the provider also does other work. A scope can be set by contract, the audit committee can still review reports, and risk management remains the board's responsibility.

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