- November 30, 2021
- Posted by: Smith & Smith
- Category: Internal & external audits
An audit is described as an accurate evaluation and analysis of the financial statements of an organization to confirm that the records represent a proper and correct view of the transactions they claim. An audit is conducted internally by the employees of the firm or externally by a third party. An audit implies a process of checking, independently, the financial records of an organization to suggest the financial statements.
Internal Auditors V/s External Auditors
Both internal and external auditors help organizations ensure that their financial reporting coordinates with accounting principles, that internal management is working precisely and that the company is in obedience to applicable laws and regulations. For both internal & external types of auditors, a keen understanding of the industry and the business is required, after all, risk in the financial matter of the business is a crucial concern. However, how they do their work is a little different.
Internal auditors, as the name suggests, work within an organization like employees, on the other hand, external auditors are independent of the organizations they audit.
Internal audit is an optional or elective function within an organization, while external audit may be compulsory. The external audit is commonly conducted by Certified Public Accounting (CPA) firms & companies to undergo audits as are required by law on an annual basis. CPA firms design financial projections for a business. The other stakeholders may need audited financial statements as a requirement of ongoing financial support.
- Internal Audit is a constant or ongoing audit activity that is conducted by the internal audit department of the firm. On the other hand, an external audit is an analysis by the third party, of the annual statements of accounts of the organization or an entity to give an idea subsequently.
- Internal audit is voluntary, which means there is no obligation, but the external audit is mandatory.
- The internal audit report is submitted to the administration department of the company. But, the external audit report is handed over to the major shareholders, or in some cases, to the government.
- The fundamental goal of the internal audit is to examine the routine processes of the business and give proposals for its progress wherever needed. Contrarily, an external audit aims at studying and verifying the precision and reliability of the financial statement.
- Internal audits deliver an idea of the significance of the operational activities of the firm. On the flip side, an external audit does give an opinion of the genuine and honest view of the financial statements.
- Internal auditors are the employees of an organization as the management of the establishment itself appoints them. In contrast, external auditors are not the employees of the firm.
Similarities Between Internal & External Audit:
The fundamental auditing procedure of both the internal audit and external audit is nearly the same. Both are established on the exact principles and techniques of accounting and auditing. Both the audits strive to find out the errors and detect the frauds. Both want to evaluate the precision of the financial statements and records. Both auditors are required to give a fair opinion on whether the financial records provide an ethical and real reflection of the true financial status of an organization or business.
Be it internal or external audits, both are responsible for keeping the engine of a company’s economy running efficiently and precisely. If you still want to know more about the audits then contact us today, we provide business accounting & tax services in Arlington state, Texas.