Internal audit outsourcing practice and rationales: SME evidence from New Zealand

Abstract

Purpose – This study seeks to examine practices in, and rationales for, internal audit outsourcing in New Zealand (NZ) companies. The purpose is to assess whether practice and preference conform to expectations where small-to-medium businesses dominate.

Design/methodology/approach – Senior financial managers of all 165 NZ Stock Exchange listed companies are surveyed. Questions are drawn from the strategic management and auditing literature. Relationships between size, international association and industry are tested or revealed from descriptive statistics and qualitative analyses. Comparisons to overseas studies, where possible, are drawn.

Findings – Of 63 usable responses (38.2 per cent response rate), a comparatively low 57 per cent carry out some form of internal audit and a further 27 per cent claim interest in doing so. International companies are more likely to engage in internal audit, and preliminary findings point to less interest within consumer and equity/trust industries. As to outsourcers, 65 per cent (11) only began doing so recently, Big4 accounting firms are a major source, access to quality is an important reason and most 82 per cent (14 of 17) are aware of independence issues. Conclusions analyse legislative incentive patterns found and suggest further research.

Originality/value – Recent scandals and legislation in the USA, UK and Australia highlight the importance of the internal audit function to industry. This study looks at practices in and rationales for internal audit outsourcing found within the NZ corporate sector.