Internal and external audit: major differences and similarities

Checking the state of affairs in any company is necessary, because only constant strict control over financial operations can guarantee the normal operation of the enterprise, not subject to the harmful influence of errors, negligence and fraud of personnel. That is why internal and external audit is extremely important for the life of any company. In this article, we'll look at both of the above types of auditing and try to understand how they differ from each other.

Internal and external audit is essentially a check on the state of affairs in a firm in a particular industry. Traditionally, the concept of audit is associated only with checking the financial state of the company, however, in fact, anything can be checked. For example, an internal audit of the quality management system can be carried out, the results of which will give a clear idea of how the firm controls the quality of products and what efforts it makes to increase it. Such a check will make it possible to identify the weakest areas of the quality management system and to formulate concrete proposals for its improvement.

Internal and external audit differ among themselves in who will conduct the audit. So, internal audit is conducted by employees of the enterprise. The decision to conduct an internal audit is taken by the company's management in the event that there are suspicions of any violations, or the internal audit is conducted regularly. To carry out the audit, a special commission of internal auditors is formed, who will check the state of affairs of the firm in one or another area for a certain period. The indisputable advantage of internal audit is its free-of-charge, and also the fact that all information remains inside the company, and none of the outsiders will have access to it. However, the internal audit has its own disadvantages: the company's employees will not be able to ensure proper independence and impartiality in the verification, since they are somehow connected with the rest of the company's team, in addition, each of the auditors will have to check, including their department, and the temptation to correct The results of the check will be incredibly great. That is why recruiting employees to the internal audit commission is an extremely responsible moment, connected with a number of complexities, and only if the commission is made up of competent employees from different departments can you expect a qualified and effective audit.

The external audit is carried out by an independent expert - a representative of the audit firm, which undertakes to verify the financial state of the organization for a fee and to report the revealed violations in a special letter in which an audit report is submitted . This kind of audit will undoubtedly be more objective, because the auditor is an independent expert, which nothing connects with the organization that he checks. However, there is also a downside to the medal: the auditor, while he is a professional, committed to keep all the information received in secret, is still external to the company, and therefore be 100% sure that he never Under what circumstances it does not use the information received, it is still impossible. In order to objectively assess the quality of the audit, an internal audit quality audit is conducted, which is similar to an internal audit, however, it has some differences related to the fact that the results of the audit are verified. After carrying out such control, a decision is taken on further cooperation with a particular audit firm.

Thus, internal and external audit are similar processes, with the main difference being that internal audit is conducted by company employees, and external - by independent experts. In order to achieve an optimal balance between the effectiveness of the audit and the resources expended, it is necessary to successfully combine both external and internal audits, each of which has both indisputably positive and negative sides.