The Relationship Between Internal and External Audit

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Professor PhD Atanasiu Pop, „Babeş-Bolyai” University of Cluj-Napoca, e-mail: PhD Student Cristina Boţa-Avram, „Babeş-Bolyai” University of Cluj-Napoca, e-mail: PhD Student Florin Boţa-Avram, „Babeş Bolyai” University of Cluj-Napoca, e-mail: ABSTRACT: Analyzing the evolution process of internal audit, from its beginnings and so far, we can easily notice that internal audit function was born through detaching of some activities from external audit, the result being that there some situations when these two functions could be easily confused. The reality is that internal audit and external audit are two distinctive functions; net differenced, but which are also characterized through some complementary relationships. In this paper, we try to give our contribution at the clarification of the similarities and differences between these two functions, making a literature review that allowed us to identify some very interesting studies that permitted us to emphasize the main criterions that influenced the relationship between internal audit and external audit. Keywords: internal audit, external audit, objectivity, competence

JEL Codes: M42 1. Introduction The coordination of internal audit activity with external audit activity is very important from both points of view: from external audit’s point of view is important because, in this way, external auditors have the possibility to raise the efficiency of financial statements audit; the relevancy from internal audit’s point of view is assured by the fact that this coordination assures for the internal audit a plus of essential information in the assessment of risks control (Dobroţeanu, L.& Dobroţeanu C.L., 2002). The importance of the relationship from internal audit and external audit is reflected also by International Standards of Audit (610 - „Considering the work of internal audit”), which foresees, among others: The role of internal auditing is determined by management, and its objectives differ from those of the external auditor who is appointed to report independently on the financial statements. The internal audit function’s objectives vary according to management’s requirements. The external auditor’s primary concern is whether the financial statements are free of material misstatements; The external auditor should obtain a sufficient understanding of internal audit activities to identify and assess the risks of material misstatement of the financial statements and to design and perform further audit procedures; The external auditor should perform an assessment of the internal audit function, when internal auditing is relevant to the external auditor’s risk assessments; Liaison with internal auditing is more effective when meetings are held at appropriate intervals during the period. The external auditor would need to be advised of and have access to relevant internal auditing reports and be kept informed of any significant matter that comes to the

internal auditor’s attention which may affect the work of the external auditor. Similarly, the external auditor would ordinarily inform the internal auditor of any significant matters which may affect internal auditing; 2. Studies regarding the relationship between internal audit and external audit The first relevant study regarding the interaction between internal audit and external audit was realized by Mautz R. (1984), and the results of this study showed that, from internal audit’s point of view, the relationship with external audit is only ostensibly a very good one. Because Mautz had not anticipated the existence of such negative reactions from internal auditors, regarding their working with external auditors, questions addressing causality were omitted from his survey. Later, Peacock E. and Pelfrey S. (1989) realized a survey through they tried to assess the current attitudes of internal auditors...
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