What is the difference between external and internal audit?
Both examine, but they differ in whom they serve, for what purpose and who carries them out.
Both auditors look at documents and ask questions. But one is hired from outside the company, while the other is the company's own employee. This difference shapes all of their work.
What are the main differences?
| External audit | Internal audit | |
|---|---|---|
| Who carries it out | an independent audit firm | the company's own employee or department |
| For whom | founders, banks, investors, the state | management and the supervisory board |
| Key question | are the financial statements reliable? | are the processes effective and safe? |
| When | usually once a year | regularly throughout the year |
| Result | auditor's report | recommendations to management |
| Is it mandatory | required by law for certain companies | often by the company's own decision |
How do they help each other?
- Internal audit finds and fixes problems early
- The external auditor uses the work of internal audit to speed up the examination
- When both work together, trust in the company's statements grows
Does a small company need internal audit?
A separate department is not necessary. But it is good to have a responsible person who reviews processes from time to time. That, too, is a form of internal audit.
Test yourself
5 questions on this topic: pick an option or reveal the answer.
The auditor sent an external confirmation request to one of the debtors of "Guliston ulgurji", but the debtor did not respond at all. What does the auditor usually do?
Internal control at "Gulobod sut" is very strong; the auditor performed tests of controls and confirmed that they operated effectively. Under ISA 330, what happens to substantive procedures for material account balances (for example, receivables)?
The balance sheet of Charxpalak savdo LLC is prepared as at 31 December. In February, before the statements are authorized for issue, the auditor found that a major customer had been declared insolvent; this customer's debt also existed at the balance sheet date. What is done under NAS No. 16?
In preparing a report, an auditor wants to use the texts of ISA 700 and ISA 705 and the model auditor's reports. On the official page of which body are they posted?
The auditor saw that at Oqtepa qurilish LLC inventories were counted on 20 October of the reporting year. Under NAS No. 19, is it mandatory to count these inventories again before preparing the annual financial statements?
Answered: 0 / 50 of 5 correct
All tests →See also
Sources
- International Standards on Auditing and internal audit practice · general classification