Internal and external audits work hand-in-hand. Their functions are complementary to one another and therefore when being carried need to be worked on together, even though their purposes and areas of focus differ.
Internal audits take an all-encompassing view of their organization’s governance, risk, and control systems (in other words, primarily non-financial information), which is useful for the company to use internally. On the other hand external audits are either concerned with the accuracy of business accounts and the organization’s financial condition or, in some industries, the organization’s compliance with laws and regulations- research that can be published publically.
Knowing how external auditing works can help internal auditors better prepare for an audit and make sure their organizational reporting and other documentation meets the company’s requirements.
The most glaring difference between these two types of audits would be the point of purpose. The purpose of an internal audit is to analyze and improve organizational controls and performance and reduce overall risk. The purpose of an internal audit is to express an opinion on the organization’s financial condition and assess the organization’s compliance with applicable regulations laws, and standards stated by the government.
There are multiple differences between the internal audit and external audit functions, which are as follows:
1. Internal auditors are for the internal company, (which includes employees, management and the board of directors) while external auditors work for an outside auditing firm.
2. Internal auditors are hired by the company, while external auditors are appointed by a shareholder vote.
3. Internal auditors do not have to be Certified Public Accountants, while Certified Public Accountants must direct the activities of the external auditors.
4. Internal auditors are responsible to employees and management, while external auditors are responsible to the shareholders.
5. Internal auditors can publish their findings in any type of report format, while external auditors must use specific formats for their audit opinions and management letters.
6. Internal audit reports are used by company management, while stakeholders, such as investors, creditors, and lenders, use external audit reports.
7. Internal auditors can be used to provide advice and other consulting assistance to employees, while external auditors are constrained from supporting an audit client too closely.
8. Internal auditors will examine issues related to company business practices and risks, while external auditors examine the financial records and issue an opinion regarding the financial statements of the company.
9. Internal audits are conducted throughout the year, while external auditors are conducted once a year only.
In short, the two types of audits may share a common last word in their names, but are otherwise completely different. Larger organizations typically have both internal and external audits carried out regularly, to ensure financial records, working processes, and financial statements are examined at regular intervals for optimum results.
Studio MG provides internal audit services in Milan as well as in Italy and the rest of the European Union. Learn more by clicking here (https://www.studiomg.eu/contatti/) and heading to our website.