Auditing is an important aspect which plays a crucial role in every business’s development. That’s because it can detect not only the errors in their early stages, but also help increase the financial situation of an organization.
We have already talked about different types of audit in our previous blogs. Today, we are going to focus on the two most popular types of audits used by most business owners.
Both Internal and External audits follow the same mission: to find and liquidate any possible issues within a business. However, there are lots of differences between them. Let’s dive deeper into this topic, and try to figure out the main differences between Internal and External Audits, and which type is best for your business.
The main distinctive feature of an Internal audit is that in most cases, it is conducted upon the request of an organization, and the representative of an audited organization can in the role of an auditor . The main goal of an Internal audit is to review the operational activities of the company, and check the effectiveness of the entire operational system. During an Internal audit, the work area is bounded by the company’s management. The purpose of an Internal audit is to review the company’s day to day activities in order to come up with options for the company’s improvement. Additionally, an Internal audit provides organizations with an opportunity to boost the value of a company’s operation.
Generally, an Internal audit involves the following steps:
- Developing the company’s internal control system
- Analyzing company’s operational activities
- Checking inventory on a regular basis
- Examining financial and non-financial information of the company
- Exposing possible errors and fraud situation within the company
In comparison with an Internal audit, an External audit takes place in completely different way. Generally, an External audit is performed by a third party in order to check the entire process of a company’s operation, and verify the fairness of the company’s financial statements. The main mission of an External audit is an independent examination of a company’s financial statements for a certain reason. As a result, an External auditor comes up with their opinion concerning the following points:
- The Fairness of the organization’s financial statement
- The validity of the accounting records of the company
- Making sure that all material facts are open in the annual accounts
Keep in mind that an External auditor should be an independent person who is not connected to the company.
Both Internal and External audits are conducted in the same way, which always becomes a reason of confusion for most companies which need an audit. However, there are lots of differences between these types of audits that you should be aware of.
In order to simplify the process of understanding both types of audits, we have prepared a list of key differences between External and Internal audits.
- Internal Audits are usually performed by a company’s internal audit department, while External Audits are performed by an independent organization.
- An Internal audit is a continuous process, while the External one is performed once in a year.
- An Internal auditor is a member of the organization which they have to audit, while an External auditor is a third-party representative.
- The main goal of an Internal Audit is to figure out the effectiveness of a company’s operation. An External Audit’s goal is to analyze and verify the trustworthiness of a company’s financial statement.
Both External and Internal audits goals are to improve the company’s operational efficiency. If you want to avoid an External audit within your organization, then you have to pay more attention to Internal Audits. That’s because in this case, you can be 100% percent sure that you are aware of every error within your business.
If you do not want to meet a third-party person within your organization and in the internal affairs of your company, then you have to be completely sure that everything goes smooth within your business. We suggest you contact Prestige Auditors and here is why:
First of all, we have a huge team of professional tax professionals and experts in auditing who will help you detect any issues in your business within a few days. Additionally, we will help you prepare for any audit in order to avoid further issues with the IRS.
You can visit our website where you will find detailed information about services provided by Prestige Auditors. Moreover, there are lots of useful blogs which will help you be aware of all the important aspects referring to businesses and taxes.