Dr. Suleiman A.S Aruwa: INTERNAL AUDIT FUNCTION (IAF)

INTERNAL AUDIT FUNCTION (IAF) OUTSOURCING AND THE PERFORMANCE OF SMES IN ENGLAND AND WALES

Abstract

The study examined the effect of outsourcing the IAF on the performance of SMEs in England and Wales and the relationship between outsourcing of IAF by SMEs and improved internal control. SMEs that were examined include 10 SMEs that indicated cost of outsourcing in their report and 10 that did not indicate any cost of outsourcing. This study employed secondary data source from the annual reports of twenty sampled SMEs obtained from FAME databases. A chi-square and student t-test was used to address the research hypotheses and a multiple regression analysis was performed to determine the relationship between the variables used which are audit independence (AIV), reduced cost of audit (RCV), restatement (RESTATE) and the total cost of audit fee (C). Results indicate no much difference between the two groups of SMEs that outsource their IAF and those that do not outsource in terms of performance. There is no statistical significant difference between both SMEs. The study suggests that SMEs that outsource their IAF incurs more cost and increase audit fees as compared to SMEs that did not outsource any form of IAF. There is a significant relationship between outsourcing of audit function and cost of audit among the SMEs. Chi square test showed no significant difference in Audit independence between both SME’s. There is a reduced cost as a result of outsourcing the IAF. The more a company outsource its IAF, the higher the chance of restating its financial statements. There is no significant relationship between outsourcing the IAF and audit independence among the SMEs. Outsourcing of IAF is being affected by the fact that a company is making a loss and hence the decision to outsource. It is recommended that policy makers should formulate policies that ensure the establishment of an IAF in-house or outsourced especially by SMEs. The IAF should be seen as a value added and core function which can assist any board towards taking decisions that will ensure objectives are achieved in terms of SMEs’ growth and expansion.

Fatima B. Abdulhameed
University of Glamorgan, UK

Suleiman A.S. Aruwa, PhD
Nasarawa State University, Keffi, Nigeria
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https://docs.google.com/file/d/0B6MachyvRY4jZ2hFVFRKd2I2XzA/edit?usp=sharing

Dr. Suleiman A.S Aruwa

INTERNAL AUDIT FUNCTION (IAF)

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