Difference between Internal vs External Auditing
If you have been in the business world where companies and organizations are involved, you may have come across the terms, internal auditing or external auditing, but what is the meaning of the two terms and what is the difference between the two?
An internal audit is an activity carried out by auditors (in internal auditing, these auditors are employees of the company they are auditing) to evaluate and improve the effectiveness of risk management, control, and governance processes in an organization. On the other hand, an external audit is an activity carried out by independent auditors (in external auditing, the auditors are not employees of the organization being audited) in accordance with the law to provide financial statements of a company or organization. The difference between the Internal vs External Auditing starts from their meaning but here are some differences between the Internal vs External Auditing.
Internal vs External Auditing
Some major difference between Internal and External Audit is:
In internal auditing, the auditors are hired or employed by the company while in external auditing the auditors are appointed by the vote of shareholders.
In internal auditing, the reports are reported and used by the management body of the organization while in external auditing the reports are directed to the stakeholders (investors, lenders, and creditors).
Internal auditors can be used to advise the employees and offer consulting assistance to the employees of the organization while external auditors are constrained from supporting the audit client (the benefit of this is to provide an unbiased audit report to the stakeholders).
Internal auditors examine issues concerning the risks and company business while external auditors only examine the company’s financial records and issue an opinion regarding the company’s financial statements.
Internal auditing is carried out throughout the year (the organization is responsible to decide how man audits they want to take) while external is carried out at least once per year (this is a recommended by the law)
Procedure Followed After the Audit
In internal auditing, a follow up is made to check whether all the recommendations have been made or not while external audit, there is no follow-up. The audit is only considered as a reference when another external audit is being taken the following year.
Many large companies and organizations usually have both an internal and external audit carried out to make sure their records, processes and financial statements are keenly examined throughout the year.
Well, those are some of the major differences between the two terms, but here is why the internal audit is for you.
Benefits of Internal Audit
One of the key areas an internal audit focuses on is the management of the organization. It helps to see whether the management is adhering to the rules of the organization or if there is a problem with the management body. If there is, auditors help in finding a solution to solve the problem.
It also assists the management to know the weak areas of the company and how to go about it and helps them secure their credential information from cyber theft.
Internal Control System
Internal auditors go through all the processes in your organization/company and if they spot a weakness they advise you on how you can improve.
The gun is not a murderer; the person who pulls the trigger is the murderer. Internal auditing helps to identify any internal problem you might be facing in your company and they help in solving it by finding the root of the problem.
You can’t completely solve a problem without knowing the cause of the problem.
The internal auditors help the employees to know who is responsible for what. This avoids confusion and helps the company processes to run smoothly and in order.
Good communication is very essential in a company. The auditors help in this area by assessing the information from the management to the employees is of good quality and easily understandable thus improving the efficiency of your company.
Do you want to know the types of internal auditing you can carry in your company? Here is a list of some common internal audits.
Types of Internal Audits
Compliance audit helps to determine if the company adheres to the law and organization rules.
The internal auditors go through all financial statements and records (this helps to see if your funds have been well allocated and used).
Information System Audit
It reviews the performance and availability of the IT department. This is a very essential part of a company because this is where all the information is kept. The internal auditors help to identify if there are some weaknesses in the IT department and advice on how to improve.
Doing this, you will be able to increase your cyber security and have a peace of mind knowing your information is safe.
This helps in reviewing the operations and functions of the company.
In order for your company to be efficient, all the operations and functions of the company must run smoothly. The internal audit helps to know if there might be a problem in the operations of the company and if there is, they will be there to show you how to address the problem.
Follow-up Audits and Testing
The internal auditors follow up to see if the correction made from the problems recognized from the past audit have been made and how they are affecting the company. This ensures the company is at its best performance.
If you have a company and want to be in the loop of everything that is happening, the best way is to perform Internal Audits regularly. Doing this, you will be able to even be able to prevent your company from problems that may occur.
When you created the company you had a target for it, don’t you think the Internal Audit is a great help in doing that?