AA – Nov 2017 – L2 – Q2a – Internal Audit and Its Relationship with External Audit

Compare and contrast the roles of internal auditors and external auditors.

Question

Internal audit is a function established by management to assist in corporate governance by assessing internal controls and helping in risk management. It can be a department of employees or outsourced to expert service providers.

Internal auditing is different from external auditing, although the techniques used by both are very similar. While the technique used may be similar, the focus and reasons behind the audit are different.

Required:
Compare and contrast the roles of internal auditors and external auditors.

Answer

Aspect	Internal Audit	External Audit
Objective	To add value and improve an organization’s operations.	To express an opinion on the truth and fairness of financial statements.
Reporting	Reports to the board or those charged with governance (e.g., audit committee).	Reports to shareholders or members on the financial statements’ accuracy.
Scope	Work focuses on assessing internal controls and risk management.	Work focuses on verifying the financial statements for accuracy and fairness.
Relationship with Co.	Often employees or outsourced experts hired by the company.	Independent of the company, usually appointed by shareholders.