Differences between internal and external audit
A business going bankrupt or Bankruptcy in a business can be caused by a variety of circumstances, but there are usually certain common threads. Capital management, cash flow, and company decisions are all possible considerations. There are “no fault” concerns in some circumstances, and problems with business contracts or failures of business companions might play a role in insolvencies. It’s critical to understand that business insolvency and liquidation can be avoided, and that help is easily available.
1
What is the objective of the audit?
- Internal audit examines if corporate processes are assisting the company in managing risks and achieving strategic goals; it can include both operational and financial aspects.
- External audit examines if the annual accounts present a “true and fair view” and are prepared in line with the law.
2
Who are the auditors and what do they do?
- Internal auditors can either be hired in-house or outsourced. While accounting is a frequent background, they can also come from other fields.
- External auditors are a ‘Registered Auditors’ outside firm of accountants (not all accountancy firms are).
3
How is the audit scheduling determined?
- The internal audit agenda is determined by the risks and objectives of the company.
- The external audit firm will devise its own work plan based on its evaluation of the risks of material misstatement of the accounts.
4
To whom does the auditor submit his/her report?
- Internal auditors are responsible for reporting to other internal auditors. Relevant managers will typically receive copies of reports because there will be recommendations that they will need to implement. Internal auditors ultimately report to the audit committee (if one exists) or the Board of Directors, ensuring high-level control.
- For an unincorporated charity, external auditors primarily report to the shareholders or trustees.
5
What kind of report are they going to get?
- Internal auditors deliver a customized report on how the risks and objectives (of the examined business sector) are managed. There will be recommendations for improvement because there is a focus on helping the firm move forward.
- The major report of external auditors follows Auditing Standards and focuses on whether the accounts present a true and fair picture and comply with legal obligations. Other issues that the auditors believe should be brought to the client’s attention will be communicated to the directors separately in a management letter.
4
What happens when the audit is completed?
- On a case-by-case basis, the internal audit follow-up will be decided. It can include checking to verify if recommendations have been followed and/or providing consultative assistance to help with implementation.
- There is no external audit follow-up until the planning stage of the following year’s audit, at which point past issues should be taken into account.
