Although the two terms sound relatively different, there can still confusion and lack of understanding of the functions of each. Because of that, there can be only a few people who know the difference between these two.
Internal auditing and external auditing are two processes that a company can undergo in a span of a year. Sometimes, the first one done in preparation for the latter.
As one of the leading auditing firms in Dubai, we know that there are a couple of differences between the two that can help you understand fully the two kinds of the audit. Below are simply a number of differences between the two. And you can contact us for more information regarding audit and assurance.
What is Audit?
Before we begin to analyze the two types of audit, we should first define what ‘audit’ is.
In simple terms, an audit is all about examining and evaluating a company’s financial statements. Since these records expected to show the transactions that done by the firm. An audit executed to ensure the accuracy and fairness of these records.
An audit can perform internally or externally. The former can achieved by the organization through facilitating it themselves with their own auditor or commonly known as ‘internal auditor’. The latter can accomplished with the help of an auditor from a third party. That hired by the organization itself.
As you can see above, there is already a difference between the two but we shall go further below.
What is Internal Audit?
The first type of audit is internal audit. This is the process wherein the activities and operations of the company assessed and analyzed. All of these even the structure of the business and its employees monitored and examined.
In this way, the organization aided in ensuring. That its objectives are not only followed but also achieved by the whole company. Since the company’s risk management and controls are evaluated all for the reason to see the needed areas to improve, this can definitely help a company with regard to the approaches that they have to do.
Internal audit is done by an internal auditor who is from the organization itself or hired from a company with audit and assurance services, whichever is preferable by the organization that needs internal auditing. Internal auditors have broad knowledge with regard to the business systems. They need to be so because they ensure that the approaches that they suggest will help the company to be efficient with its operations and flow of business.
What is External Audit?
On the other hand, the second type of audit is an external audit. It is an examination of the financial statements by an independent auditor, known as an external auditor. Who is from a third-party company or from one of the auditing firms in Dubai. External auditors have no way affiliated with the business that being audited.
Unlike the previous one, which is an internal audit. This done based on a country’s laws or regulations where the company situated. Also, unlike an external audit, internal audit performed for purposes such as it required by the law of the land.
What are the Differences between the Two Types of Audit?
- When it comes to why a company does an audit. The internal audit gives the organization an idea of where to improve and how. Meanwhile, external audit is for the company to prepared with their accurate and fair financial statements in accordance with the law.
- Internal auditors, as mentioned above, can be a person from the company or from an audit and assurance services firm. However, external auditors should hired from one of the auditing firms in Dubai or a third-party company and should be registered auditors.
- These auditors have different ways of presenting their findings or reports. Internal auditors show the company the areas that need to be improved. And the approaches on how to improve them and to make the flow efficient for the business. These are recommendations that can greatly enhance the company’s way of meeting their objectives and achieving them. On the other hand, external auditors submit their report in accordance with the auditing standards. It stated there if the financial statements are fair and accurate, complying with the legal requirements.
- Internal audit is not mandatory. It is the organization’s choice whether they would like to have a monthly, quarterly, or yearly internal audit to ensure that their company is running smoothly. Even if it is not require. It is advisable since it will have a positive impact on the performance of the organization. On the other hand, external audit regulated. It is usually require by the government of the country where the company located. Even if that is the case, it is really helpful for the company’s case.
Farahat & Co. has been one of the top audit firms in Dubai for more than 30 years. We have been helping businessmen with their dilemmas. We are a regulated auditor, offering audit and assurance services. To have a consultation with us, please book one here.