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Unit 6: Internal and External Audit

Detailed Examination: Auditors perform testing and obtain evidence to satisfy the requirements Notes
of the audit program. Testing may include e.g. confirming compliance with the organisation’s
accounting policies, examining accounting records and verifying the existence of tangible items
such as plant and equipment.
Audit Report: Contains the audit opinion on the financial report and basis of that opinion. The
scope of the audit plus auditors and management responsibilities are also restated.

Self Assessment

Fill in the blanks:
9. An .............................. audit will feature a report outlining the auditor’s findings.
10. Auditors start by gaining an understanding of the organisation’s ..............................

11. Auditors perform .............................. and obtain evidence to satisfy the requirements of the
audit program.
12. The more important feature of an .............................. audit is the conclusion of the auditor.

13. External audits are typically conducted once a .............................. at the end of the company’s
or government’s fiscal year.

6.6 Similarities and Dissimilarities between Internal and
External Audit

So far, you have already acquired a good understanding about the concept of internal audit and
external audit. Now, we are going to discuss about the similarities and dissimilarities between
the two. We will also discuss how internal auditor and external auditor can cooperate among
themselves in achieving their objectives.
Points of similarities: Internal audit and external audits are similar in following ways:
1. Both are concerned with evaluation of internal control system.

2. Both are concerned with adequacy and correctness of accounting entries.
3. Both are concerned with verification of assets and liabilities.
4. Both are similar in their approaches of auditing like test checking application of statistical
tools, observations, enquiries etc.
Points of dissimilarities: External and internal audits differ in the following respects:
1. Mandatory: In most of cases, enterprises are under compulsion of law to appoint an
external auditor. However, internal audit is not mandatory expect for those companies
where Companies (Auditor’s Report) Order, 2003 is applicable.
2. Independent: The external auditor is independent of the organization which appoints him.
On the other hand, internal auditor is generally an employee of the organization or an
outside audit firm appointed especially for the purpose. So, independence of internal
auditor is assured in most cases.
3. Scope: The scope of an external audit is determined by Law as applicable to organization
and cannot be modified or restricted. Whereas the scope of internal audit is determined by
the management and may be expanded or restricted depending on the needs and objectives
of the organization.

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