THE EFFECT OF INTERNAL AUDIT OUTSOURCING ON PERCEIVED EXTERNAL AUDITOR INDEPENDENCE

According to survey conducted by The Institute of Internal Auditors (IIA) in 2016, it was found that majority of publicly listed companies fully outsourced their internal audit functions. This survey raises an important age-old question that a growing number of organizations may be facing in the future as the demands of effective governance and risk management become more complex.

"Independence is the cornerstone of the accounting profession and one of its most precious assets." Robert Mednick, Chair, American Institute of Certified Public Accountants (AICPA) Board of Directors, 1997.

The importance of auditor independence, both actual and as perceived by others, has been widely recognized both in theory and by regulators. As firms have begun to get involved in internal audit outsourcing, newindependenceissues have arisen regarding the propriety of these firms performingboththe internal and external audit functions for the same company.

(https://facultystaff.richmond.edu/~mgeiger/Publications/AuditOutsourcing012799.pdf)

REQUIRED: -

required to present a standard report containing the following details: -

a)Regulatory requirement relating to external auditor's independence, ethics and quality assurance in getting the service assistance from internal auditors.(50 marks)

b)Discuss on the level of auditor's independence when a company's internal audit functions are outsourced to: -

i)Anotherexternal auditor (i.e., not their own external auditor)(50 marks)

ii)Their own external auditor. The concern is whether the external auditor can perform the internal audit function and also provide an independent "second set of eyes" at the internal control systems.(50 marks)

(GRAND TOTAL: 150 marks)