External and internal audit: the differences
Different clients, different goals, different results
Go to the «Mandatory audit» serviceChecked against the official source:
The two types of audit are often confused, although they have little in common — essentially only the word in the name and some of the methods used.
Comparison under the law
- external audit — an audit firm from the Register examines the financial statements and issues a report (Articles 27, 39 of ZRU-677; Article 109 of the JSC Law);
- internal audit — the company's own function, accountable to the supervisory board (Article 108 of the JSC Law);
- the external auditor is liable to the company for an incorrect conclusion in the report (Article 109).
Who performs it
External audit is performed by an independent audit firm unrelated to the company being audited. Internal audit is a unit of the company itself, or specialists it engages, working in the interests of its governing bodies.
Who the result is for
The external auditor's report is intended for external users: shareholders, banks, investors, counterparties. An internal audit report is an internal document for management and the owner; it usually does not leave the company.
What is examined
- External audit — the annual financial statements as a whole
- Internal audit — processes, controls, efficiency, compliance with procedures
- External audit is carried out after the year-end, internal audit throughout the year
- External audit ends with a report in the prescribed form, internal audit with a report containing recommendations
How they are connected
The external auditor may rely on the work of internal audit when planning — if satisfied with its independence and quality. A well-functioning internal function can reduce the scope of external procedures, but it does not remove the obligation under Article 35 of ZRU-677.
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Go to the «Mandatory audit» serviceFrequently asked questions
Can the external auditor also be engaged for internal audit?
Combining the two calls independence into question: the auditor would be in the position of checking its own work. Independence requirements are set by Article 34 of ZRU-677, and these functions are usually kept separate.
Can internal audit replace external audit?
No: a report on the reliability of financial statements may be issued only by an audit firm included in the Register (Articles 27, 39 of ZRU-677).
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