01 Oct The Difference Between Internal and External Audits 2022
First Lets see what is Internal and External Audit Means:
What is an Internal Audit?
Internal audit implies the department positioned within a business that supervises the efficiency of its processes and controls. The internal audit function is particularly essential in larger organizations with high levels of process intricacy, where it is easier for process failures and control breaches to happen.
What is an External Audit?
An external audit is an investigation that is led by an independent accountant. This sort of audit is most commonly envisioned to result in a certification of the financial statements of an entity. This certification is needed by certain investors and lenders, and for all publicly-held businesses.
Comparing Internal and External Audits
There are numerous differences between the internal audit and external audit functions, which are as follows:
- Internal auditors are company employees, whereas external auditors work for an outside audit firm.
- Internal auditors are employed by the company, whereas external auditors are hired by a shareholder vote.
- Internal auditors do not have to be CPAs, whereas a CPA should regulate the actions of external auditors.
- Internal auditors are answerable to management, whereas external auditors are accountable to the shareholders.
- Internal auditors can issue their findings in any kind of report format, whereas external auditors should use particular formats for their audit opinions and management letters.
- Internal audit reports are used by management, whereas external audit reports are used by stakeholders, like investors, creditors, and lenders.
- Internal auditors can be used to offer advice and other consulting assistance to employees, whereas external auditors are restricted from supporting an audit client too meticulously.
- Internal auditors will scrutinize issues related to company business practices and risks, whereas external auditors inspect the financial records and issue an opinion concerning the financial statements of the company.
- Internal audits are performed throughout the year, whereas external auditors conduct a single annual audit. If a client is publicly-held, external auditors will also offer review services three times per year.
In short, the two functions share one word in their names but are otherwise rather different. Larger organizations characteristically have both functions, thereby guaranteeing that their records, processes, and financial statements are closely scrutinized at regular intervals.