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Internal audit outsourcing in Australia

Author

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  • Peter Carey
  • Nava Subramaniam
  • Karin Chua Wee Ching

Abstract

The present study investigates the determinants of internal audit outsourcing using survey data on 99 companies listed on the Australian Stock Exchange, where 54.5 per cent fully rely on in‐house facilities and 45.5 per cent outsource some or all of their internal audit function. Results from logistic regression analyses suggest that internal audit outsourcing is associated with perceived cost savings and the technical competence of the external provider. For a subsample of firms that have previously undertaken internal audit activities before outsourcing, contrary to expectations, the larger the organization the greater the propensity to outsource. In addition, smaller firms are found to be adopting internal audit for the first time, through outsourcing. These results suggest that internal audit outsourcing is an expanding business opportunity for professional accountants; but with 75 per cent of firms outsourcing to their external auditor, there are implications for external auditor independence.

Suggested Citation

  • Peter Carey & Nava Subramaniam & Karin Chua Wee Ching, 2006. "Internal audit outsourcing in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(1), pages 11-30, March.
    • Handle: RePEc:bla:acctfi:v:46:y:2006:i:1:p:11-30
    DOI: 10.1111/j.1467-629X.2006.00159.x
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    References listed on IDEAS

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    1. Anderson, Don & Francis, Jere R. & Stokes, Donald J., 1993. "Auditing, directorships and the demand for monitoring," Journal of Accounting and Public Policy, Elsevier, vol. 12(4), pages 353-375.
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    Cited by:

    1. Mihret, Dessalegn Getie, 2014. "How can we explain internal auditing? The inadequacy of agency theory and a labor process alternative," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 25(8), pages 771-782.
    2. David Hay & Jenny Stewart & Nives Botica Redmayne, 2017. "The Role of Auditing in Corporate Governance in Australia and New Zealand: A Research Synthesis," Australian Accounting Review, CPA Australia, vol. 27(4), pages 457-479, December.
    3. Martin Mutschmann & Tim Hasso & Matthias Pelster, 2022. "Dark Triad Managerial Personality and Financial Reporting Manipulation," Journal of Business Ethics, Springer, vol. 181(3), pages 763-788, December.
    4. A. Tafuro & A. Costa & A. Fanelli & А. Тафуро & А. Коста & А. Фанелли, 2016. "Организационные аспекты внутреннего аудита в итальянских корпоративных группах // Organizational aspects of the internal audit of Italian corporate groups," Review of Business and Economics Studies // Review of Business and Economics Studies, Финансовый Университет // Financial University, vol. 4(3), pages 68-90.
    5. SAVA Raluca, 2013. "Outsourcing Accouting – Benefits And Limits In The Current Economic Environment In Romania," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 8(2), pages 123-127, August.
    6. Grzegorz Gołębiowski, 2010. "The Internal Audit Outsourcing," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 4(2), June.
    7. Clive Gaunt & Steven Cahan, 2014. "Accounting and Finance: authorship and citation trends," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(2), pages 441-465, June.
    8. Ahsan Habib & Dinithi Ranasinghe & Julia Yonghua Wu & Pallab Kumar Biswas & Fawad Ahmad, 2022. "Real earnings management: A review of the international literature," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(4), pages 4279-4344, December.
    9. Aggelia Xanthopoulou & Andreas Delegos & Petros Kalantonis & Panagiotis Arsenos, 2021. "Exploring the Effect of Corporate Governance on the Audit Effort: The Case of Greek Port Authorities," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 111-129.
    10. Jenny Stewart & Nava Subramaniam, 2010. "Internal audit independence and objectivity: emerging research opportunities," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(4), pages 328-360, April.
    11. Popoola, Oluwatoyin Muse Johnson & Shehu, Aliyu Mukhtar & Aminu, Ibrahim Murtala & Nik Mat, Nik Kamariah & Nasiru, Abdullahi & Tsagem, Musa Muhammad Tsagem & Kura, Kabiru Maitama, 2012. "The Mediating Effect between Some Determinants of SME Performance in Nigeria," MPRA Paper 66775, University Library of Munich, Germany, revised 2013.
    12. Saeed Rabea Baatwah & Adel Ali Al-Qadasi, 2020. "Determinants of outsourced internal audit function: a further analysis," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(4), pages 629-659, December.
    13. Van Cong Nguyen & Thi Ngoc Lan Nguyen & Thanh Hang Pham & Song Hoa Vu, 2019. "The Impacts of Selling Expense Structure on Enterprise Growth in Large Enterprises: A Study from Vietnam," JRFM, MDPI, vol. 13(1), pages 1-22, December.
    14. Mathieu Floquet & Pierre Labardin, 2014. "Les déterminants de la sous-traitance de la fonction comptable dans les entreprises françaises," Post-Print hal-01899426, HAL.
    15. Jacqueline Christensen & Pamela Kent & Tom Smith, 2016. "The decision to outsource risk management services," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 56(4), pages 985-1015, December.
    16. Cullinan, Charles P. & Zheng, Xiaochuan, 2015. "Outsourcing accounting information systems: Evidence from closed-end mutual fund families," International Journal of Accounting Information Systems, Elsevier, vol. 17(C), pages 65-83.
    17. Philip Law, 2008. "An empirical comparison of non-Big 4 and Big 4 auditors' perceptions of auditor independence," Managerial Auditing Journal, Emerald Group Publishing, vol. 23(9), pages 917-934, October.
    18. Dessalegn Getie Mihret & Getachew Zemenu Woldeyohannis, 2008. "Value-added role of internal audit: an Ethiopian case study," Managerial Auditing Journal, Emerald Group Publishing, vol. 23(6), pages 567-595, June.
    19. Philip Law, 2010. "CPAs' employment with former audit clients and auditor independence in the post-Enron era," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(3), pages 240-258, March.
    20. Paul Coram & Colin Ferguson & Robyn Moroney, 2008. "Internal audit, alternative internal audit structures and the level of misappropriation of assets fraud," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(4), pages 543-559, December.
    21. Isabel Z. Wang & Neil Fargher, 2017. "The effects of tone at the top and coordination with external auditors on internal auditors’ fraud risk assessments," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(4), pages 1177-1202, December.

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