Internal Audit Function Characteristics and External Auditors’ Co-Sourcing in Different Institutional Contexts

We examine the association between several characteristics of an internal audit function (IAF) and fees paid to external auditors to support internal audit activities (co-sourcing). We also analyze how this relation is influenced by the mandatory or voluntary implementation of IAFs. By using data from the Common Body of Knowledge (CBOK) study, which was conducted by the Institute of Internal Auditors Research Foundation (IIARF) in 2015, we find that more consulting-oriented IAFs and more autonomous IAFs are likely to pay higher co-sourcing fees, while IAFs with greater expertise are likely to pay lower co-sourcing fees. While results related to consulting activities hold regardless of the institutional context, the negative association between IAF expertise and co-sourcing fees paid to support internal audit activities only holds in mandatory IAF environments, and the positive association between IAF autonomy and co-sourcing fees paid only holds where IAF is voluntary