Difference between internal audit and external audit 2020

Key difference - Internal vs External Audit

The control process is one of the essential aspects of an organization for its long-term survival and success. The audit committee is appointed by the board of directors to review the effectiveness of the company's audit process. Internal audit and external audit are the two main components of the audit process. The fundamental difference between internal and external audit is that internal audit is a function that ensures independent and objective assurance that the internal control system and the risk management system operate effectively while the audit is an independent function outside the organization that assesses the financial and risk aspects to comply with the statutory auditors in UAE requirements.

What is Internal Audit?

Internal audit is a function that provides independent and objective assurance that an organization's internal control and risk management system works effectively. The internal audit function is led by the internal auditor who has recent and relevant financial experience. The internal auditor is appointed by the audit committee and the internal auditor is responsible for the members of the control committee and must report periodically on the results of the audits. The audit committee has the following roles to perform with regard to internal audit.

1.     To monitor and verify the effectiveness of the internal audit function of the company

2.     Ensure that the internal audit function has access to adequate financial resources and other resources to perform its functions

3.     Make sure that the internal audit function has support and access to relevant information from all parts of the organization to carry out a successful audit

4.     Report to the board and make appropriate recommendations on how to improve the company's internal control system

5.     Consider management's response to any external or internal audit recommendations

If the company does not have an internal audit function (this is possible in a certain type of company, particularly in small companies where an external audit function exists), the need for an internal audit function should be considered annually.

What is external audit?

External audit is an independent function outside the organization that assesses the financial and risk aspects associated with compliance with the statutory audit requirements. The main role of the external audit is to provide an opinion if the company's financial statements present a true and correct view and evaluate the effectiveness of the internal audit function. Therefore, the internal control function is replaced by the external control function. The external audit function is managed by the external auditor, appointed by the company's shareholders. The audit committee plays the following role with regard to external audit.

1.     Assign recommendations to the board in relation to the appointment, removal and reelection and external auditor

2.     Approve the remuneration and conditions of engagement of the external auditor

3.     Monitor and verify the independence of the external auditor, performance and objectivity, and develop and implement the policy on the engagement of the external auditor to provide non-audit services

What is the difference between internal and external audit?

Internal audit to external hearing

Internal audit

Internal audit is a function that provides independent and objective assurance that an organization's internal control and risk management system works effectively.

Main responsibilities

The main responsibility of Internal Audit is to review the effectiveness of the internal control system.

Legal requirement

The availability of an internal audit function is not mandatory by law.

Appointment of the auditor

The internal auditor is appointed by the audit committee.

External audit

1.     External audit is an independent function outside the organization that assesses the financial and risk aspects associated with compliance with the statutory audit requirements.

2.     The primary responsibility of the external audit authority is to provide an opinion if the company's financial statements present a true and correct view.

3.     All companies must have an external audit function required by law.

4.     Shareholders appoint the external auditor.

Summary - Internal Audit to External Hearing

The difference between the internal and external audit is a distinct position in which the internal audit is conducted by corporate employees while the external audit is conducted by an external party to the organization. The control committee should meet at least twice a year to carry out its audit on the effectiveness of the internal audit function and the management board should also review the effectiveness of the auditors in Dubai committee annually. Since the external auditor is appointed by the shareholders and the function replaces the internal audit, the external audit is considered more credible.