Audits are an essential need for all business organizations. While people who work in organizations, as well as those who own them, fear audits, they have many benefits to offer as well. On the one hand, audits require you to keep matters in check and maintain discipline- the reason the corporate world fears them.
On the other hand, disciplined practices, and compliance with regulations help boost business legitimacy as well as credibility. Audits can be of many kinds. It is crucial for you as a business owner to understand the fundamental types, i.e., internal and external audits, and then seek professional auditors.
Defining Internal and External audits:
Internal audits examine, analyze and report the issues related to business practices, risks, and the viability of policies to solve those issues. External audits look into financial statements, and report to business owners regarding those.
This article aims to highlight the key differences between internal and external audits.
Four differences to set apart internal and external audits
Audits can broadly be grouped into categories, namely, internal Audit and External Audit. You will be able to understand your business needs better when you develop a thorough understanding of both and can identify the key points distinguishing them.
Having established the knowledge and deep understanding, you can quickly seek the required audit services as per your business priorities. Following are the key differences between internal and external audits:
Inspects workflow components and risks
Checks financial statements and reports on their accuracy
Auditors answer to management
Auditors answer to key stakeholders or business owner itself
Use of information
Fulfills needs of internal management
Helps with top-tier business decisions
Required throughout the year
Required once a year
While the general use of audits seems to be the inspection of various components of your workflow and business processes, each of the audit types has a distinct purpose. The purpose of the Internal Audit is to assess whether the practices in your organization are helping your business stay afloat. It takes into account risk management capacity and viability of strategies to meet business objectives. Internal Audit thus covers areas of operation as well as financial nature.
The purpose of external audits, on the other hand, is to carefully analyze, assess, and verify the financial statements. It gives a verdict on whether the books and finances have been accurately represented with no unfair practices.
The purpose of both is different, but each has its significance. Better to seek services from companies offering auditing and accounting services and ensure keeping a check on financial as well as operational matters of your business. You will be able to stay at par with accounting standards and comply with legal requirements at the same time.
When it comes to the responsibility of auditors, internal Audit and external audits are a lot different from each other once again. Internal auditors have on their shoulders the responsibility to answer to management and leaders of an organization regarding the accurate flow of information within the organization.
However, external auditors are responsible and answerable to the owners of the organization. These owners can be the proprietary owners, government shareholders, or sometimes even the general public. So in the case of corporate companies, external Audit reports to the business owner.
3. Use of information
Internal and external audits are not different in terms of their purpose and the responsibility of auditors but are also different in the data produced as a result. Internal auditors prepare reports which are the concern of a company’s management. The information in these reports includes the management needs and status of impending risks and underlying objectives.
In short, internal audits help the businesses move forward and identify the hurdles which impede the process. External audits, on the other hand, are reported to key stakeholders. These stakeholders may include investors, creditors, or lenders. The format of an external audit report follows accounting standards. The report focuses on the compliance status of accounts and legal requirements in general.
Internal Audit is required and hence conducted in organizations throughout the year, whereas the external audits once a year. The internal audits are meant to check the progress in terms of the implementation of new strategies and recommendations brought forward by previous audit reports. This need of frequency makes it all the more vital for you to seek services of the top audit firms in Dubai, for a strict and streamline progress.
The external audits, on the other hand, do not need any follow-ups. You need them, however,when in the planning stage for the next year’s Audit. It is so because you need to consider the past issues pertaining to financial matters.
Does your company conduct regular audits?
The importance of audits for corporate companies cannot be overemphasized. You need them to track business progress, whether it is the financial matters or operational affairs. These not only help you deal with your key business stakeholders with confidence but also help the management of your organization improve workflow processes.
Make sure you hire an independent accounting and auditing professional from an independent source for internal as well as external audits. Make sure your administration realizes the importance of each. Do not take the role of professionals for granted in this regard.
Help your business prosper and only go higher!