The American Accounting Association Defined auditing as;
“A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events , to ascertain the degree of correspondence between those assertions and established criteria , and communicating the results to interested users”. An unbiased examination and evaluation of the financial statements of an organization. It can be done internally (by employees of the organization) or externally (by an outside firm). As defined by the Institute of Internal Auditors (IIA), "Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. Internal Auditors' roles include monitoring, assessing, and analyzing organizational risk and controls; and reviewing and confirming information and compliance with policies, procedures, and laws. Working in partnership with management, internal auditors provide the board, the audit committee, and executive management assurance that risks are mitigated and that the organization's corporate governance is strong and effective. And, when there is room for improvement, internal auditors make recommendations for enhancing processes, policies, and procedures." External Auditing can be defined as a periodic examination of the books of account and records of an entity carried out by an independent third party (the auditor), to ensure that they have been properly maintained, are accurate and comply with established concepts, principles, accounting standards, legal requirements and give a true and fair view of the financial state of the entity.’ (CIMA’s Management Accounting Official Terminology)
Both internal and external auditing provide stakeholders with reasonable assurance that risks are appropriately mitigated. External auditors are primarily concerned with financial statement presentation. As a result, there is a lot of effort surrounding controls that impact revenue, expense, income or liability line items. Internal auditors also provide reasonable assurance that risks are appropriately mitigated. However, an internal auditor’s scope extends beyond financial statements. The scope may include an organizations operations, information technology, strategic initiatives, fraud investigations, process and control optimization and compliance.
COMMON INTEREST AND WORK OVERLAP BETWEEN INTERNAL AND EXTERNAL AUDITORS Internal and external audit have different roles and different priorities but there can be a lot of overlap in what they do and why they do it. Good co-operation between them will minimise duplication of effort and maximise the benefits of working together towards the same goals. Final accounts work
Internal audit can assist external audit with work on year end balances or on the verification of assets. In some cases year end work is not within internal audit’s ambit but where it is or can be accommodated then cooperation is possible.
Visits to establishments
In cases where there are many entities within the audited body requiring audit visits (eg, schools, GP fundholders, cash offices, social services units) it will often be sensible for internal audit to take the lion’s share of the necessary audit visits, since their greater familiarity with the business being conducted and their year-round presence provide potential efficiencies for the audited body.
External audit is required to assess management’s arrangements for the economic, efficient and effective use of resources. Internal auditors will often be required to appraise the economy and efficiency with which resources are employed (Institute of Internal Auditors Standard 340). There is good potential for cooperation here too. Fraud...
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