Expert verified Outsourcing internal audit can be a wise strategy that not only helps to control costs but also improve audit quality, and stay compliant.
Explore with us advantages and disadvantages of outsourcing internal audit function, along with solutions on how to make the partnership favourable for your goals.
Understanding Outsourcing Internal Audit & Its Types
Outsourcing Internal Audit is the practice of hiring an external third-party service provider like PKC Management Consulting to perform some or all the functions traditionally handled by an in-house internal audit department.
Outsourcing internal audit can be done in three main ways:
- Full Outsourcing: The entire internal audit function is managed and executed by the external provider. The company may retain a small internal head (e.g., a Chief Audit Executive) to oversee the relationship.
- Partial Outsourcing (Co-sourcing): Specific audits, projects, or specialized areas (like IT audit, forensic audit, or complex regulatory compliance) are outsourced, while the core team handles routine audits.
- Staff Augmentation: The external firm provides individual auditors to supplement the in-house team during peak periods or for specific skill gaps.
It is important to remember that while the execution is outsourced, the overall responsibility for the internal audit function, its effectiveness, and its alignment with goals of the company remains with the company’s management and Audit Committee.
Advantages of Outsourcing Internal Audit
Outsourcing internal audit functions to specialized providers has many advantages for both multinational corporations (MNCs) operating in India and Indian companies. Here are the key benefits:
Cost Efficiency:
Outsourcing eliminates fixed costs such as salaries, benefits, training, and software licenses tied to maintaining a full-time internal audit department.
Costs are instead converted into variable fees based on the actual work performed, making this approach especially cost-effective for smaller companies that cannot justify a full in-house team.
Access to Specialized Skills & Expertise:
Companies gain access to deep industry knowledge, technical expertise in areas like IT security, data analytics, and fraud investigation, as well as exposure to best practices from working with multiple clients.
This allows organizations to engage subject matter experts for complex or niche areas without committing to permanent hires.
Scalability & Flexibility:
Audit resources can be scaled up or down quickly in response to evolving business needs, risks, or specific project demands such as mergers, acquisitions, or major system rollouts.
This flexibility also supports rapid deployment of resources for urgent or unexpected audits.
Enhanced Independence & Objectivity:
External providers offer a fresh, unbiased perspective and are less influenced by internal politics or relationships that could compromise objectivity.
This enhances stakeholder confidence, particularly among Audit Committees and regulators, by reinforcing the perception of audit independence.
Access to Advanced Technology & Methodologies:
Organizations benefit from the service provider’s investment in leading audit tools, data analytics platforms, and established methodologies.
This can significantly improve audit quality and efficiency for an organisation leading to improved results.
Focus on Core Competencies:
Outsourcing internal audit functions allows management to redirect time and resources toward core business activities rather than building and overseeing an in-house audit team.
Mitigation of Staffing Challenges:
It alleviates the challenges of hiring and retaining skilled internal auditors, especially in competitive labour markets or when specialized expertise is needed.
Top Industries in India That Outsource Internal Audits
Based on industry dynamics, regulatory complexity, and operational scale, here are the top industries in India that can benefit from outsourcing internal audits:
Banking & Financial Services (BFSI):
Highly regulated by RBI, SEBI, IRDAI with complex products and high transaction volumes.
Internal Audit Focus:
- Credit/operational risk
- KYC/AML
- Treasury audits
- Cybersecurity & data privacy
- Branch audits
Insurance (Life, General, Health):
Stringent IRDAI oversight, complex claims, and fraud risks.
Internal Audit Focus:
- Underwriting
- Claims processing
- Solvency compliance
- IT controls
- Agency audits
IT & IT-Enabled Services (IT/ITeS):
Global compliance (e.g., SOX), complex IT ecosystems, high data security demands.
Internal Audit Focus:
- ITGC
- Application Controls
- SOC 1/2
- Cybersecurity
- GDPR/DPDPA
- Contract compliance.
Manufacturing (Auto, Pharma, FMCG, Industrial):
Complex supply chains, cost pressures, quality/safety compliance.
Internal Audit Focus:
- Inventory, procurement
- GST
- Cost controls
- Plant operations
- Environmental audits
Healthcare & Pharma:
Strict quality norms (FDA, WHO-GMP), high fraud and data risks.
Internal Audit Focus:
- Regulatory compliance
- Billing
- Clinical trials
- Procurement
- Data privacy (EMR/EHR)
Telecom:
Massive infrastructure, billing complexities, fraud risk, TRAI regulations.
Internal Audit Focus:
- Revenue assurance
- CAPEX audits
- Network security
- Customer acquisition cost
Retail & E-commerce:
High volume, low margin, inventory shrinkage, omnichannel complexity.
Internal Audit Focus:
- Inventory control
- POS audits
- Vendor management
- E-commerce controls
- GST
- Loyalty programs
Infrastructure & Construction:
Large projects, high procurement risk, compliance with RERA/environmental laws.
Internal Audit Focus:
- Project cost control
- Revenue recognition
- Subcontractor audits
- Fixed assets
- HSE
Education & EdTech:
Regulatory scrutiny, complex funding, data privacy
Internal Audit Focus:
- Fee reconciliation
- Grant/scholarship controls
- IT security
- Compliance
Real Estate:
RERA compliance, complex funding, JV structures.
Internal Audit Focus:
- Project costs
- Customer advances
- JV accounting
- Procurement
- Revenue recognition
Startups:
Scaling challenges, investor due diligence, limited resources.
Internal Audit Focus:
- Financial controls
- Burn rate
- SaaS revenue recognition
- ITGC
- Fraud risk
- Investor reporting
Why Choose PKC for Outsourced Internal Audit Function?
✅Over 35 years of internal audit domain experience
✅Team of qualified CAs, CS, MBAs, and CFAs
✅Expertise in risk-based internal audit frameworks
✅Deep understanding of Indian statutory requirements
✅Special focus on internal controls and governance
✅Process optimization with proven cost-saving strategies
✅Industry-specific audit approaches for accurate insights
✅Scalable team to match your business complexity
✅Experience with ERP-integrated audit environments
Frequently Asked Questions
- Why is India becoming popular for internal audit outsourcing services?
India offers highly skilled audit professionals, low operational costs, and a strong understanding of global compliance standards. Many firms also provide 24/7 support due to time zone advantages.
- What types of companies benefit from outsourcing audits?
Startups, SMEs, and large multinational corporations all benefit. It’s especially useful for companies with limited internal compliance expertise or fast-scaling operations.
- How do I choose the best internal audit firm in India?
Look for certifications (CA, CPA, CISA), experience, client testimonials, and industry-specific expertise. Ensure the firm understands both local and international regulations.
- Can internal audits be done remotely from India?
Yes—many Indian firms offer 100% remote internal audits. They use cloud platforms, secure file sharing, and virtual audit tools.
- What’s included in outsourced internal audit services?
Services often include risk assessments, compliance checks, internal control evaluation, fraud detection, and operational audits. Some firms also offer MIS reporting and dashboards.
