Tuesday, December 21, 2021

Abstract The aim of this study is to investigate how the board of directors, audit committee (AC), external auditor and management explain the outsourced internal audit func- tion (IAF) practice. Although prior studies provide some insights into the determi- nants of IAF, we have little understanding of how their characteristics are associ- ated with outsourced IAF. Using 767 observations from an emerging market, we find that board independence and AC accounting expertise are negatively associated with outsourced IAF. We also observe a positive association between board exper- tise, AC independence, CEO with accounting expertise, and the size of the external audit firm and outsourced IAF. Corroborating these findings, additional tests show that the type of outsourced IAF provider, either big4 or non-big4, plays a significant role in these associations. We also extend the recent literature on the governance role of an AC chair with accounting expertise and report that a chair with account- ing expertise is associated with outsourced IAF if the provider is a big4 audit firm. These findings may serve a large number of stakeholders who are interested in audit practices in general and IAF practices in particular.