Although
they are independent of the activities they audit, internal auditors are
integral to the organization and provide ongoing monitoring and assessment of
all activities. On the contrary, external auditors are independent of the
organization, and provide an annual opinion on the financial statements. The
work of the internal and external auditors should be coordinated for optimal
effectiveness and efficiency.
Internal
and external auditors have mutual interests regarding the effectiveness of
internal financial controls. Both professions adhere to codes of ethics and
professional standards set by their respective professional associations. There
are, however, major differences with regard to their relationships to the
organization, and to their scope of work and objectives.
Internal
auditors are part of the organization. Their objectives are determined by professional
standards, the board, and management. Their primary clients are management and
the board. External auditors are not part of the organization, but are engaged
by it. Their objectives are set primarily by statute and their primary client —
the board of directors.
The
internal auditor's scope of work is comprehensive. It serves the organization
by helping it accomplish its objectives, and improving operations, risk
management, internal controls, and governance processes. Concerned with all
aspects of the organization — both financial and non-financial — the internal
auditors focus on future events as a result of their continuous review and
evaluation of controls and processes. They also are concerned with the
prevention of fraud in any form.
The primary
mission of external auditors is to provide an independent opinion on the
organization's financial statements, annually. Their approach is historical in
nature, as they assess whether the statements conform with generally accepted
accounting principles, whether they fairly present the financial position of
the organization, whether the results of operations for a given period of time
are accurately represented, and whether the financial statements have been
materially affected.
The
internal and external auditors should meet periodically to discuss common
interests; benefit from their complementary skills, areas of expertise, and
perspectives; gain understanding of each other's scope of work and methods;
discuss audit coverage and scheduling to minimize redundancies; provide access
to reports, programs and working papers; and jointly assess areas of risk. In
fulfilling its oversight responsibilities for assurance, the board should
require coordination of internal and external audit work to increase economy,
efficiency, and effectiveness of the overall audit process .
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