When many people hear the word audit, they first think of a painful and grueling interrogation to uncover real or imagined harms. However, this misleading impression overlooks the fundamental role that internal and external auditors play in the business world. Without these two types of audits, our capital markets would lack integrity and function less efficiently. Like external auditors, internal auditors must comply with auditing standards. Certified Internal Auditors (CIAs) must comply with IIA standards. However, since internal audit does not require a job title, it may be up to the company to establish and apply these standards. External auditors may also not have conflicting interests or close relationships with individuals who could influence their findings or alter their neutrality. Internal auditors may come from a variety of professional or academic backgrounds, while external auditors are chartered accountants (for financial audits) or compliance professionals or government employees (for compliance audits). In some cases, potential or existing customers may request an audit to verify that an organization meets their requirements. Internal auditors examine their organization`s governance, risk and control systems holistically (in other words, primarily non-financial information), while external auditors examine either the accuracy of the organization`s corporate accounts and financial position or, in some areas, compliance with laws and regulations. Having a highly qualified auditor working on your behalf can help avoid potentially catastrophic problems. Fraud, abuse, or non-compliance with government regulations can all be hidden beneath the surface of your day-to-day accounting practices and can become more pronounced as your business grows. Here are some reasons why you`d want to work with an external auditor as soon as possible: To prevent someone from stealing money from you, conduct regular checks of your books.
Money can disappear from more than one area of your business, with one or more people working together to falsify outgoing sales invoices, vendor invoices, expense reports, or payroll numbers. You can start with internal audits of your departments, with an external source auditing your entire finance department. If external sources detect irregularities, ask them to check your services. The internal auditors will examine matters related to the Corporation`s business practices and risks, while the external auditors will review financial records and provide an opinion on the Corporation`s financial statements. External auditors work for an independent panel to assess a company`s financial records and practices. To ensure that the Company`s balance sheet and other financial statements fairly reflect its financial position and are free from material misstatement, they follow a number of procedures to verify the accuracy of the Company`s figures and assess its internal controls. External audit activities not only verify errors and inaccuracies, but also assess whether these errors are likely due to the intentional actions of the organization`s employees. In other words, these individuals review the work of internal auditors to ensure that they have not missed any errors or intentionally “falsified the books.” External audit is recommended for any organization due to the dynamic global marketplace, changing business models, and the increasing complexity of reporting standards due to mandatory compliance with GAAP, IFRS, and corporate law requirements. An external audit is mandatory for all companies registered in the UAE. Depending on the size of the organization, the internal audit function can be performed or outsourced by a company`s internal audit department.
The scope of their work is managed by the Board of Directors, but they maintain objectivity and independence by reporting to the Audit Committee or the Board of Directors. Their audit reports are sent to audit area management. These reports highlight ways to streamline internal controls and ideas to streamline operations. Internal audit is preventive and ongoing, providing management with ideas and suggestions that encompass all governance, risk and control processes, while an external financial audit typically takes place annually or at least once every five years, with a scope limited to financial statements. In compliance audits, the scope is determined by the supervisory authority carrying out the audit. The U.S. Securities and Exchange Commission`s website states: “The Audit Committee should determine whether a relationship with an auditor or an auditor`s department: This table summarizes the key differences between internal and external audit. In short, internal audit helps improve companies from within, while external audit ensures that what they present to the outside world reflects what really happened.
Both types of audits ensure that the engine of our economy is operating efficiently and accurately. As a general rule, internal audit is carried out continuously. His audit work includes a holistic view of the organization`s financial and non-financial ratios for overall risk management. They ensure that a company`s business practices contribute to the achievement of its strategic objectives. Their objective is both prospective and retrospective: to verify that financial transactions are correctly recorded in a company`s information systems, while ensuring the long-term soundness of the company. More than ever, close-knit family businesses and not-for-profit organizations are seeing the benefits of hiring an external auditor to review their books and validate their financial situation.