Sourcing of Internal Auditing: An Empirical Study

Roland Speklé, Hilco van Elten and A.M. Kruis

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: In recent years, the scope of internal auditing has broadened considerably, increasing the importance of internal auditing as part of the organization’s management control structure. This expanding role has changed the demands being put on internal auditors. Their new role requires different skills and competencies, and many organizations now need to face the choice whether to develop these broader competencies internally or to outsource internalauditing to outside service providers. This paper studies the factors associated with organizations’ internal audit sourcing decisions, building from a previous study by Widener & Selto (1999; henceforth W&S). In their study, W&S used Transaction Cost Economics (TCE) to explain the organization of internal auditing. Our study seeks to replicate their results, using newly collected data from 66 companies headquartered in the Netherlands. Our findings are supportive of W&S. Like W&S, we find asset specificity and frequency (both individually and in interaction) to be significantly associated with sourcing decisions in a regression model that explains 65% (adjusted R2 = 0.63) of the variance in outsourced internal auditing. Additional analyses reinforce the importance of these TCE variables in explaining organizations’ internal auditing sourcing behaviour.

Keywords: internal auditing; make-or-buy decision; transaction cost economics (search for similar items in EconPapers)
JEL-codes: D23 L22 L23 M M4 M41 M42 (search for similar items in EconPapers)
Date: 2005-09-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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