Can external auditors be used for an internal auditing of an organization?
Audits, whether internal or external, gauge the performance of a company or organization in a specific area. When bolstered by auditing software, new levels of collaboration and data visualization are unlocked. There are different types of internal and external audits, each of which has a distinct focus. Here are some of the most common:
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An audit is the most detailed of three related activities that organizations can perform. Included in this group are:
Internal and external audits can be time-consuming. Digitized records and automated accounting software can help your company streamline the process, automatically find inconsistencies, and visualize data to inform executive decisions. With these systems in place, you can focus on the results of audits rather than the process. Here is a closer look at what you can expect from internal and external audits and the advantages and drawbacks of each. What is internal auditing?The overall goal of internal auditing is to make a company more efficient, more profitable and better at making key decisions. For example, a company could order an internal audit of its inventory system. The auditor would look at the system for tracking inventory and see if it accurately reflects the supplies that a company has on hand and if there are any delays or discrepancies. Internal auditors are employees of a company who provide objective and independent reports on a company’s finances, operations and management practices. Their goal is to accurately assess performance and provide insights that aren’t affected by office politics or other influences within the company. One way to streamline internal audits is to have an audit trail. This is a collection of chronological events, time and date-stamped financial records, and details about operational decisions. If data gets organized in this way, it is easy for an auditor to find patterns or call up specific information that can help them pinpoint a problem or see exactly where a mistake happened. Here is a closer look at the advantages and disadvantages of having internal auditing for your organization. Pros of internal auditingWhen supported by well-organized data and skilled auditors, internal auditing can bring specific advantages to an organization.
Cons of internal auditingInternal auditing brings advantages, but there are also some drawbacks to consider.
While internal auditing can bring good results, it is not a requirement. External audits, however, are sometimes mandated by law. What is external auditing?An external audit looks at the accuracy of a company’s financial statements and whether its accounting practices comply with all applicable rules and regulations. The auditor also verifies that the financial reports and records offer an accurate picture of the company’s performance. All publicly-traded businesses have to publish financial statements for investors. These records need to be independently audited to ensure they provide a full and accurate picture of a company’s financials. Additionally, nonprofits have to undergo audits to retain their tax-exempt status. Private companies do not have to undergo external audits as a matter of routine, but some still choose to do so. Typically, external audits help them build trust with their customers or furnish them with additional proof to show lenders when applying for credit. External audits are performed by a third-party auditor who has no ties to the organization and no stake in the outcome of the audit. Qualification requirements for external auditors vary, but they must be certified accountants with qualifications and professional accreditations. There are advantages and disadvantages to external audits. Pros of external auditingWhen a company is required to have an external audit, it can enjoy certain advantages.
Cons of external auditingExternal audits can also come with drawbacks, some of which can be significant if you aren’t prepared for them.
An internal audit can help your company see how prepared it is for an independent external audit. Key differences between internal and external auditingInternal and external audits both seek to provide an independent opinion about a company’s finances or practices. However, they differ significantly when it comes to who performs the audit, its overall purpose, and its scope. Here is a closer look at these differences:
Internal auditors may help prepare for external audits. For example, they can use automated systems for preparation, compilation and review to organize for an external audit or assess internal performance. How to streamline the audit processAuditing software can help you create a more efficient process leading to more accurate results. These systems decrease internal auditing costs, reduce compliance worries and help auditors organize their reports more easily. Cloud-based software also improves communication, makes reports more accessible, and facilitates coordination between different accounting professionals. The software also reduces the workload by automatically filling important reports and creating financial documents that are ready for an employer, external auditor or client. Can external auditors perform internal audit?The external auditor, in the course of discharging their responsibilities must decide if it is appropriate in the circumstances to use internal audit to provide direct assistance.
Can internal and external auditors work together?By working more closely with external auditors, internal audit can become more forward-looking and adaptive, provide the organization with greater expertise and stronger risk management capabilities, and serve as a training ground for future leaders.
Why a company would hire internal auditors if they already have an external auditor?Depending on the expertise of your accountant, an internal audit might be more forensic, spotting problems and opportunities with your policies and procedures, while an external audit might focus on verifying your numbers and that you are following standard accounting procedures.
Can the external auditor use and rely on the work of the internal auditor to reduce his testing and costs?From the perspective of the PCAOB, an external auditor that appropriately relies on the work of others such as internal auditors can achieve enhanced audit efficiency without a loss of effectiveness (PCAOB, 2007b).
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