Difference between Internal Audit and External Audit

An internal audit is a review of internal controls and risks while an external audit is an independent evaluation of the financial statements of a company. It is unethical to see Internal audit vs External audit since both are equally important and serve a different purposes for a business. Let us see the major differences between internal audit and external audit while also knowing about the aspects of external auditors and internal auditors as well. 

What is Auditing? Auditing is an integral part of a business and is conducted to evaluate the overall performance and the current financial position of the organization. Auditing is performed in-house by the experts or by hiring an external auditor. BMS Auditing has highly experienced as well as bank-approved auditors with intense expertise and knowledge in internal and external auditing. We assist both private and public sector organizations irrespective of size. 

Major Differences between Internal Audit and External Audit

Audits, be they internal or external when stimulated by auditing software unlock various collaboration levels and data visualization. These are the most common types of audits:

• Audits for financial statements 
• Audits for compliance
• Audits for operations
• Audits for risk management

Compilation and Review are the activities apart from the audit, performed by the organization. The compilation provides the fundamental financial data without a deep analysis, fact verification, or explanation. Reviews provide limited details, that compare the numbers to expected figures to check for variabilities. 

This session discusses the difference between Internal & External Audits. 

What is an Internal Audit?

An internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. The ultimate goal of the Internal Audit is to bring more efficiency to business, more revenue, and enable enhanced decision-making. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Internal audit is performed by internal auditors under contract with the organization. Internal auditors provide a purpose and distinct reports on the finances, operations, and management activities of the company. The goal of the auditors is to precisely analyze the performance and provide awareness that it is not impacted by office politics or any influences within the company. Let's see more about internal auditors below.

What do Internal Auditors Do?

Internal auditors help protect organizations by evaluating compliance, risk, and prospects. They assess the company documents and necessary data to find issues such as non-compliance with regulations, data inaccuracies, and employee theft. 

Internal auditors work in various industries, such as healthcare, technology, education, and government. Internal auditors would either work full-time or as contractors for shorter auditing projects. 

Internal auditors utilize their knowledge and expertise in laws, industry regulations, and company rules and policies to detect possible issues of non-compliance, misuse of funds, and related issues in a business. 

Here are some common responsibilities held by internal auditors: 

• Examining financial records 
• Analyzing compliance
• Managing Risks
• Detecting fraud and theft
• Communicating

Pros of the Internal Audit

• Improves decision-making
• Improves efficiency and operations
• Clarifies and minimizes risks
• Establishes compliance and success in external audits

Cons of the Internal Audit

• Expensive
• Obstacles in Operations
• Negative responses from employees
• Imperfect usage of digital accounting system

Internal Auditing could bring better results, although it is not necessary, However, External Audits are legally mandatory. 

What is an External Audit?

An External Audit focuses on the accuracy of the financial statements of the company and ensuring the compliance of the accounting practices with the regulations. The external auditor validates the financial reports' accuracy and business performance records. 

The external audit process typically includes reviewing the organization's financial statements, performing audit procedures, and evaluating and issuing an opinion on the financial statements. External audits are conducted by a third-party auditor who is unrelated to the organization or has a share in the results of the audits.

What do External Auditors Do?

External auditors perform independent evaluations of the financial statements and disclosures of organizations. They ensure error-free financial statements or no fraudulent activities involved. External auditors work with the accounting and finance team, along with senior management. They also join other external auditors if the company is a large organization. External auditors are independent of the organization being audited and are hired by the organization's board of directors or shareholders.

With adequate experience, these external auditors are responsible for supervising other auditors or monitoring the performance of the audit team. External auditors support businesses and organizations with great confidence concerning financial accuracy and compliance with GAAP (Generally Accepted Accounting Principles) and accounting standards. 

Here are some key duties of external auditors:

• Audit planning
• Conducting Audit Procedures
• Assessing Audit outcomes
• Communicating outcomes of audits
• Audit documentation

Pros of the External Audit

• Enhanced clarity
• Robust internal controls
• Improved authority 

Cons of the External Audit

• High costs
• Negative exposure
• Compliance issues

Internal Audit vs External Audit

Internal and External Audits both provide an unbiased opinion about the finances. However, they vary when in performance, objective, and scope. 

• Scope: Internal audits focus on a particular area of the company, while External Audits consider all the relevant financial information and implementations ensuring the validity of the financial statements
• Purpose: Internal Audit focuses on assessing the current performance and finding the areas for improvement. External Audit focuses on validating the accuracy and certainty of the financial statements
• Auditor: External Auditors belong to third-party while Internal Auditors work within the company and for the company. 

Internal and External Audit Services

BMS Auditing is a renowned audit firm in UAE, KSA, Bahrain, Oman, Qatar, UK, India and USA that has been offering the best internal audit services and external audit services with globally accredited auditors.  

Internal audit Services

Audit services are one of our core strengths. Our skilled internal auditors dive deep to identify areas in your business that require attention and assist you in embedding control by offering exceptional internal audits.

External audit Services

We take an effort to completely understand each customer and the business through external audit services. This allows us to identify the major areas and hazards to which the firms are exposed and target our audit efforts accordingly.

BMS has a highly qualified and experienced team who has intense expertise in both internal and external audits. The team provides incomparable services related to internal and external audits based on the requirements. 

Need assistance with auditing? Internal or External Audit? Call BMS