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ACCA Strategic Professional · Strategic Business Leader · Internal control and management reporting

Zenith Telecom's board is reviewing whether to outsource internal audit to a professional firm that also provides its external audit. The audit committee wants specialist IT skills and flexibility, but also wishes to preserve objectivity and governance quality. Which course of action is most appropriate?

The best course is to outsource to a firm other than the external auditor while the audit committee keeps oversight of appointment, scope and reporting. This gains specialist IT skills and flexibility without creating self-review threats or weakening governance.

  1. AOutsource to a different firm from the external auditor, with the audit committee retaining oversight of scope, appointment and reportingCorrect
  2. BOutsource to the external audit firm and let management direct the work
  3. COutsource and remove the audit committee's involvement to reduce cost
  4. DKeep internal audit in-house only because outsourcing is prohibited

Explanation

Outsourcing can bring specialist skills and flexibility. Using a different firm avoids the external auditor reviewing its own work and threats to independence, and the audit committee should retain oversight of scope and reporting. Management direction or removing the committee weakens governance, and outsourcing is not prohibited.

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