(a) Discuss the advantages and disadvantages of outsourcing an internal audit department to a firm other than the auditors.
(b) MonteHodge Co. has a sales income of $253m and employs 1,200 people in 15 different locations. MonteHodge Co. provides various financial services from pension and investment advice to individuals, to maintaining cash books and cash forecasting in small to medium-sized companies. The company is owned by six shareholders, who belong to the same family; it is not listed on any stock exchange and the shareholders have no intention of applying for a listing. However, an annual audit is required by statute and additional regulation of the financial services sector is expected in the near future.

Most employees are provided with online, real-time computer systems, which present financial and stock market information to enable the employees to provide up-to-date advice to their clients. Accounting systems record income, which is based on fees generated from investment advice. Expenditure is mainly fixed, being salaries, office rent, lighting, heating, etc. Internal control systems are limited, the directors tending to trust staff and being more concerned with making profits than implementing detailed controls. Four of the shareholders are board members, with one member being the chairperson and chief executive officer. The financial accountant is not qualified but has many years' experiences in preparing financial statements.

Required:
Discuss the reasons for and against having an internal audit department in MonteHodge Co.