Internal Audit Sourcing: Does it Matter to Commercial Lenders?

Arnold Schneider

Abstract


This study examines whether the type of internal audit sourcing affects commercial lending decisions. An experiment was conducted with 58 commercial loan officers, who provided risk assessments and lending probabilities for a hypothetical loan applicant. The independent variable, the applicant’s approach to sourcing the internal audit function, was manipulated using three levels – in-house, outsourcing, and cosourcing. The results do not support the type of internal audit sourcing influencing either lenders’ risk assessments or likelihood of approving loans. Loan officers typically have more information about a loan applicant than was provided in this study’s questionnaire. Economic consequences such as suffering financial losses from poor lending decisions are not present in this study. Furthermore, the study has relatively small group sample sizes. As far as borrowing money is concerned, loan applicant companies need not be concerned about how they source their internal audit functions. This study extends prior research by examining cosourced internal auditing as well as outsourced internal auditing.

Aus. Aca. Acc & Fin. Rev Vol 5(1), Jan 2019, P 41-47

Keywords


Lending; Internal Auditing; Outsourcing

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