Is it a good idea to outsource the internal audit function of the company rather than having an in-house audit team of employees?

An outsourced internal auditor function is a costs effective option to enable compliance to corporate governance, stock exchange rules, and provide additional internal controls.

The overhead of a staff-in-house internal audit function is a high cost to the profitability; bottom line of a company.

The risk is mitigated in the internal audit function in-house if the internal audit team reports to the Chief Executive Officer and the Audit Committee.  Never should report to the board of directors. The audit committee is supposed to consist of non-executive directors who are no involved in the day to day running of the company.

It is always advisable to have a CA firm as an external auditor. Sometimes it is a mandate of the GOVT TAXATION authorities. An internal auditor may always overlook the ommissions and commisions whchich an external auditor worth his reputaion would not. Only an external auditor can detect instances of window dressing.