The Evolving Role of Internal Audit and How Co-Sourcing Is a Strategic Advantage

Key Takeaways

• Internal Audit’s Expanded Role: Internal audit now provides forward-looking insight and oversight across emerging risks like cybersecurity, AI, and ESG.
• New IIA Standards: The 2024 standards emphasize independence, governance alignment, and risk-based audit planning across a broader risk landscape.
• Strategic Co-Sourcing: Co-sourcing allows organizations to retain control of internal audit while supplementing teams with specialized external expertise.
• Key Advantages: Co-sourcing offers greater objectivity, access to specialized skills, and flexible resources to address changing audit demands.
• Team Development: Working with external specialists helps internal auditors build new skills and strengthen overall audit capabilities.

By now, internal audit has firmly established itself as both an assurance provider and a strategic advisor. As organizations face increasing technology disruption, regulatory complexity, cybersecurity threats, emerging AI governance challenges, and ESG scrutiny, boards and executive leadership now expect internal audit to deliver forward-looking insight, real-time assurance, and independent oversight across an increasingly complex risk landscape.

The Institute of Internal Auditors (IIA) Global Internal Audit Standards (issued January 9, 2024) reinforce this expanded mandate. The standards emphasize independence, governance alignment, technology enablement, and value creation beyond traditional compliance activities and retrospective control testing.

At the same time, organizations are rethinking how to resource internal audit effectively. One model gaining continued traction is co-sourcing. No longer considered just a temporary solution to staffing shortages, co-sourcing has become a strategic advantage.

Internal Audit’s Mandate

According to IIA, the mission for internal audit (to enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight) remains foundational. However, how the mission is executed has greatly evolved. Under the IIA Global Internal Audit Standards, chief audit executives must develop risk-based audit plans based on documented risk assessments. The risk assessments must consider not only financial and operational risks but also risks associated with digital transformation, third-party ecosystems, ESG reporting, data governance, and organizational culture.

Internal audit must also assess the effectiveness of risk management processes and contribute to their improvement. This shifts the function beyond after-the-fact testing toward proactive engagement with enterprise risk management. Meeting these expectations requires expertise that many internal teams, particularly mid-sized functions, may struggle to maintain across all risk areas.

Co-Sourcing as a Strategic Advantage

Co-sourcing differs from outsourcing. In an outsourced model, an external provider assumes primary responsibility for the internal audit function, whereas in a co-sourced model, internal audit retains ownership and accountability while supplementing its capabilities with external expertise where needed. Strategy and governance remain internal, while specialized skill sets are flexibly deployed.

Let’s take a look at some of the benefits of co-sourcing internal audit.

1. Access to Specialized Skills

Emerging risk areas require technical expertise. For example, cybersecurity, cloud governance, AI model risk, advanced data analytics, and ESG reporting frameworks are highly specialized fields. Hiring full-time experts for each area is often impractical for most organizations. IIA Standard 3.1 – Competency states that internal auditors must possess or obtain the knowledge, skills, and abilities to perform their job responsibilities. Co-sourcing is a practical option to meet this requirement. External specialists can be engaged for targeted audits to provide assurance and alignment with current best practices.

2. Greater Objectivity and Broader Perspective

External partners bring an independent perspective based on cross-industry experience. They often identify blind spots that internal teams, embedded within the organizational culture, may overlook. External resources do not replace internal knowledge; they complement it.

The IIA Standards emphasize objectivity as a core principle. Engaging external professionals can also enhance perceived and actual independence, particularly when auditing complex or sensitive areas, such as executive compensation structures, transformation programs, or major IT implementations. Additionally, external specialists often provide benchmarking insights that elevate discussions with senior management and audit committees.

3. Flexibility and Scalability

Risk is not static, and audit workloads fluctuate. Major system implementations, acquisitions, regulatory changes, or incidents can create unexpected or temporary spikes in demand for internal audit services. Maintaining a fully staffed team to meet these demands year-round can be challenging and inefficient.

Co-sourcing allows organizations to scale resources up or down based on the audit plan and emerging risks. This flexibility enables chief audit executives to respond quickly without compromising quality or overextending core staff.

4. Development for Internal Teams

A well-structured co-sourcing arrangement promotes knowledge transfer. Internal auditors working alongside specialists gain exposure to new and advanced tools, methodologies, and emerging risk frameworks. Over time, this strengthens the internal function.

IIA Standard 3.2 – Continuing Professional Development requires that internal auditors maintain and continually develop their competencies to improve the effectiveness and quality of internal audit services. Co-sourced engagements serve as real-time development opportunities that can accelerate skill growth more effectively than classroom training alone.

Making Co-Sourcing Strategic, Not Tactical

To deliver real value, co-sourcing must be intentional. Internal audit leadership should clearly define roles and maintain ownership of audit conclusions. Governance structures, reporting lines, and quality assurance processes must remain consistent with the IIA Standards and Code of Ethics. Selecting a co-source partner is equally important. The right partner not only understands technical subject matter but also the organization’s strategy, risk appetite, and culture.

Final Thoughts

Internal Audit’s value lies in delivering credible assurance while offering insight that informs better decisions. The expectations placed on internal audit continue to increase, necessitating a greater level of expertise each year.

Co-sourcing provides a strategic way to meet these demands by combining institutional with specialized knowledge while maintaining in-house accountability. For organizations seeking to align with the IIA Global Internal Audit Standards and strengthen governance in an increasingly complex world, co-sourcing is not just an operational choice but rather, a competitive advantage.

To learn more about McKonly & Asbury’s Internal Audit services, please contact Victor Kong, Senior Manager, or Jennifer Smith, Manager, each of whom have over 20 years of internal audit and co-sourcing experience.

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