That’s the recom­men­dation from the Institute of Chartered Accoun­tants of India (ICAI), as reported by The India Express:

“In the high-powered committee report on Satyam scam, we have proposed that internal audit should be outsourced and not be in house so that there is more indepen­dence. If the auditor is from the organ­i­sation, it is as good as being an employee of the organ­i­sation and the chances of remaining unbiased decline. Market regulator Sebi through clause 49 and the corporate affairs ministry through the Companies Law should make it mandatory that the internal auditor should be from outside the organ­i­sation,” ICAI president Amarjit Chopra told The Indian Express.

I can’t really argue with the logic, but the feasi­bility of the idea is fair game. The logistics of putting this into place is giving me a headache, and it does seem like an overre­action to a single instance of fraud.

The voice of reason comes from the director of KPMG in India:

“More important [than outsourcing] is the commu­ni­cation between head the of internal audit and CEO or chairman of audit committee. The success depends more on how freely and directly the internal auditor can discuss the short­comings in a firm with the CEO of audit committee.”

Boards should be ensuring that the lines of commu­ni­cation between the Chief Audit Executive and the Audit Committee are direct and commu­ni­ca­tions frequent and frank. That applies even if IA is outsourced as well.

I blogged a while ago about the Satyam scandal.