Internal Audit Functions Outsourcing Versus The Independence Of The External Auditor: Separation Of Staff Of Audit Firm To The Rescue?

The debate on whether the external auditor of a client organization would not compromise his independent position and remain impartial in the face of obvious pressures from top management of an organization has not abated. The study therefore joined the foray by examining if separating staff of an audit firm would affect the perception of the auditor's independence when he provide internal audit services to a client organization. The objective of the study was to ascertain if the separation of an audit firm staff contracted to perform outsourced internal audit functions would affect the perception of auditor independence impairment. The population of the study consists of 861 persons in seven categories of Academics, Auditors, Analysts, Bankers, Investors, Managers and Regulators. A manageable and acceptable sample size of 550 respondents was logically selected for the study using a stratified and random sampling technique. Descriptive statistic backed by econometric qualitative model response was used to test the hypothesis. The study found a significant positive relationship between separation of staff of an audit firm and the independence of the external auditor, hence an auditing firm that engages in separation of staff between those who perform attest functions and those that perform outsourced internal audit functions tend to enjoy a better auditor independence perception. In conclusion, the separation of staff between those who perform outsourced internal audit functions and those that perform attests functions promote the independence of the external auditor.This study therefore, recommends the separation of staff of an accounting firm between those who perform attest functions and those that perform outsourced internal audit functions, as this would likely improve the perception of auditor independence. The implication of this is that staff should be specifically engaged to perform internal audit functions for client organizations.