Micro, Small and Medium Scale enterprises (MSMEs) are recognized globally as the bedrock of meaningful development in any economy. MSMEs significantly contribute to employment and the Gross Domestic Product (GDP) in emerging economies. Sequel to the economic recession, the Federal Government through the Central Bank of Nigeria (CBN) established a N75billion survival fund to revitalize the MSMEs in the county. Consequently, and to ensure effective utilization of the fund, the study examines the key factors influencing the outsourcing of internal audit function (IAF) among MSMEs in Lagos State. The study adopted survey research design, using purposive sampling technique to select 170 respondents among registered MSMEs by SMEDAN in Lagos. An adapted structured questionnaire was used to collect data, validated using Cronbach alpha with 85% percent response rate. Descriptive and inferential analysis revealed that factors influencing (IAF) outsourcing include asset specificity (3.35), environmental uncertainty (3.53) and cost of auditing (3.43) mean value. This implies that insufficient in-house knowledge, availability of external service providers and cost benefit analysis are major reasons for IAF outsourcing by MSMEs in Nigeria. The study recommended that owners and managers’ of MSMEs should ensure that audit functions are outsourced to external professionals in order to achieve high audit quality at a reduced cost.
Keywords: Cost, Environmental Uncertainty, Internal Audit, Outsourcing, asset specificity
