Eight Differences between Internal and External Audits
For most companies and startups that have newly stepped into UAE’s corporate world, an audit is about the end of year accounts. Although it may hold some truth; however, there is a lot more to it than just that. The types of audits organizations use hold different importance for organizations.
From the assessment of financial records to any risks the businesses may be facing, audits tend to provide comprehensive solutions for an organization's problems. The two main types of audits include external and internal audits.
Considering the importance of audits in organizations, the Financial Audit Department along with the UAE Commercial Companies Law, both enforce that all companies, regardless of their size, should audit their books. If you own a company in the UAE, hire the top audit firms in Dubai to get your books audited.
Despite the differences between internal and external audits, it’s easy to confuse between the two. It becomes essential to know the difference between the two types of financial audits if you're new in the business. This article aims to highlight the differences between internal and external audit in an attempt out clear out any misconceptions.
Differences between internal audit and external audit
From the reporting authorities and the audit process to the post-audit agenda and the reports, internal and external audits are very different. Read the text below to know how external audits differ from internal and how both of them work to enhance the productivity of business and organizations in the UAE.
Purpose of Audit
Internal audits focus on business practices that are assisting the organization in managing risks and also to fulfill its aims. This may include operational matters along with financial. External audits focus on the annual accounts of the firm and involve several legal matters.
Auditing Entity
The organization will employ internal auditors. Other companies may perform internal audits. These auditors may come from different backgrounds. External auditors are “registered accountants” and are outside firms. Businesses in the UAE need to have on board auditing firms approved by the authorities of the region.
Audit Agenda
For internal audits, the plan is set keeping in mind business risks and objectives. For the external audit, the registered firm set its agenda that focuses on misstated accounts and any risks.
Audit Authority
The relevant managers receive any audit reports and act upon them if needed. These reports are sent to the audit committee or the audit board to allow oversight at higher levels. The external audit report involves critical shareholders.
Audit Reports
The internal audit reports consist of information about the way any risks and aims and objectives are being catered to. To help the business move forward, suggestions are given. The external audit report ensures that the accounts given are fair, and in the case of any findings, “management letter” is sent to the directors.
Post Audit Activities
External audits do not have any follow up, until the following year’s audit, which includes discussion of the past issues. The follow up for internal audits, on the other hand, is done on a case by case basis. And can include an analysis of any post report activities to fix problems mentioned.
Reach of Reports
Internal auditors do not publish the reports to the public. Whereas external auditor reports are available to the public, the management letters mentioned above, are private property and are not released generally.
Necessity
Although internal audits aren't compulsory, shareholders and stakeholders may require you to have an external audit, so there is no exemption for you.
Take Away!
An internal audit works to improve the functioning of the organization preparing it for success. It’s rather flexible and optional nature make it a little less urgent compared to external audits. The external audit, on the other hand, is a controlled process, which contributes towards the critical aspects of your company’s accounting processes and practices.
The comprehensive nature of external audits makes it all the more important to hire the best companies to perform external audits for your firm! Opt for the top audit firms, and you’re bound to be satisfied with your company’s financials and your stakeholders too!
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