Week 6 - Key Differences Between Internal and External Audit

Question 1

Objective of internal audit

Answer 1

Evaluate organisation’s risk management process and systems of controls, and assess achievements of organisation’s objectives

Question 2

Responsibility

Answer 2

Internal - responsible to management (to BoD via audit committee)
External - responsible to shareholders

Question 3

Carried out by

Answer 3

Internal auditors - usually employees or outsourced, external audit is a body independent of the organisation

Question 4

Scope

Answer 4

Internal audits review all aspects of the organisation’s activity, external focus on financial aspects

Question 5

Approach

Answer 5

Internal - evaluate internal control systems to help manage risks and to achieve objectives, minimise errors and inefficiencies
External - test basis on which financial statements have been produced, reliability of systems. Verify assets and liabilities

Question 6

Legal status

Answer 6

Internal - UK CG Code for listed companies, mandatory in public sector
External - Companies Act 2006

Question 7

Frequency

Answer 7

Internal auditing is more frequent as they are there throughout the year, unlike external audit who visit 4/5 times a year

Question 8

Materiality

Answer 8

External auditors are interested in materiality - use to manage sample sizes and conduct audit efficiently - internal auditors are not

Question 9

How paid

Answer 9

Internal auditors are paid an employees salary, whereas external auditors are invoicing the client

Question 10

Focus

Answer 10

External auditors focus on financial statements, internal auditors look at controls and risks in the company

Question 11

Objective of external audit

Answer 11

Provide an opinion on whether the financial statements show a true and fair view and have been prepared in accordance with accounting standards and company law