Internal vs External Audits: The Primary Differences
An audit refers to the crucial evaluation procedure of the myriad aspects of an organisation, such as its finances, internal controls, processes, and so on. Companies undergo audits primarily to acquire insights and opinions about themselves, be it in their business processes or financial condition.
By having another party scrutinise its operations, management can gain critical details that will positively impact its day-to-day operations and the business as a whole. Generally, an audit can be grouped into two main categories: internal audit and external audit.
An internal audit is a necessary process that primarily focuses on thoroughly analysing and improving an organisation’s internal controls and performance, typically performed by one or more of its employees. On the other hand, external audits require the aid of third-party audit firm services, of whom are tasked with expressing their opinion on the company’s financial condition or compliance with state laws.
As stated, these two audits vary greatly and possess even more notable differences between them. This article will shed light on those differences.
The main focus
An internal audit’s primary purpose is to holistically judge a business’s organisational controls, practices, and performance. Once these are thoroughly analysed, auditors will then typically assess their findings, evaluate the company’s GRC processes, and identify risks along the way. They also gauge whether the business’s practices are proving to be effective in supporting its strategic objectives. Moreover, they also try to eliminate any risks that may become an obstacle in achieving said objectives.
On the contrary, the main focus of an external audit is to find whether the company’s financial accounts are reliable and accurately portray its financial performance. Alternatively, the focus of an external audit could also be in the verification of the company’s regulatory compliance with federal regulations or industry-specific standards.
An internal audit is primarily concerned with examining and appraising an organisation’s records, procedures, operations, and other controls. While it doesn’t directly delve into verifying the accuracy of the organisation’s financial accounts and reporting risks, it does play a role in ensuring that they remain accurate and free of issues. Furthermore, internal audits happen more regularly and focus on preventative measures.
Conversely, external audits focus on two things － the integrity of the organisation’s business accounts and its standard of compliance towards specific state and industry regulations. Additionally, external auditors will also report any internal control problems that they discover and advise corrective actions to address any identified non-compliance issues. As for its frequency, these audits typically take place annually or at least once every five years.
The primary audience intended to benefit from an internal audit’s reports is generally the organisation’s board of directors, its senior managers, and the audit committee.
In contrast, an external audit concerns parties that are not directly involved in the company’s internal management structure. This audience includes, but are not limited to, shareholders, investors, the organisation’s customers, compliance professionals and government employees.
The auditor’s expertise
Internal auditors are typically composed of individuals from a wide range of professional and academic backgrounds who specialise in specific fields of an organisation.
External auditors, contrarily, our certified accountants are working for professional, large or small audit firms in Singapore, depending on its nature. Additionally, they can also be associated with government bodies if the audit deals more with the organisation’s compliance.
Audits are an essential component for each company to make sure they are on the right track. They help regulate a company’s operational activities and find potential risks, frauds, and other factors that might harm the company. While the two types of audits, internal and external, may sound and seem similar at first glance, they have quite a few notable differences, as mentioned above.
If you’re on the lookout for a company that offers external audits, OneStop Professional Services can assist you. Known for delivering professional and quality corporate services, we not only help in executing well planned and conclusive external audits for your organisation. Even if it’s the case of outsourcing your business requirements, our corporate services can also meet your needs – from company secretary services to accounting services.