Internal Audit Outsourcing and Quality of Audit of Small Medium Enterprises (Smes) in Lagos State

Adeniji, Ayinla Yisa (2016)

x,119p

Thesis

The study determined the extent to which SMEs outsource internal audit functions in Lagos State and assessed the factors influencing the outsourcing of internal audit functions among SMEs in the state. These were with a view to providing information on the impact of outsourcing internal audit functions on the audit quality of the SMEs. The study employed primary data. The population for the study consisted of 300 registered SME owners in Lagos State in accordance with Lagos Business Directory (2013). Data on variables such as asset specificity, environmental uncertainty, audit cost, quality of audit and outsourcing of internal audit function were sourced through the administration of structured questionnaire on 170 respondents. Data obtained were analysed using percentages and chi-square method. The result from the study indicated that the extent of adoption of outsourcing internal audit functions among SMEs was very high (62%). It further revealed that compliance with established policies (59%), application of internal control systems (59%) and special investigation (50%) were wholly outsourced by SMEs. Internal audit functions were mostly outsourced on yearly basis as indicated by the result. The major factors identified as influencing internal audit outsourcing among respondents were asset specificity (x=3.3 5, p>0.05), environmental uncertainty (x=3.53, p>0.05) and cost of auditing (x=3.4, p>0.05) mean value. Furthermore, the result showed that outsourcing of internal audit function by SMEs had significant impact on the audit quality (F=3.719, p<0.05). This study concluded that outsourcing of internal audit functions had a significant impact on the audit quality of SMEs in Lagos State. Also, internal audit outsourcing promotes independence of audit in small and medium scale companies.

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