8 differences between internal and external audit

internal audit For many people “audit” is about the end of year accounts, which is very often the case. However internal audit has a different focus it is worth having a look at the differences – especially if you are a company director or a charity trustee.   I’ve spent a significant part of my career as an external auditor and these days internal audit is one of the services I provide – so here are my thoughts (in the context of the UK commercial & charity sectors):   


Internal audit

External audit

1What's the purpose of the audit?
  • To consider if business practices are helping the business manage its risks and meet its strategic objectives- it can cover operational as well as financial matters .

  • To consider whether the annual accounts give a "true and fair view" and are in accordance with legal requirements

2Who are the auditors?
  • Internal auditors can be employed by the business or outsourced. While an accounting background is common, they can also come from other relevant backgrounds.

  • An outside firm of accountants who are Registered Auditors (not all accountancy firms are).

3How is the audit agenda set?
  • Internally in the light of business's risks and objectives.

  • By the audit firm based on their assessment of the risks of the accounts being materially misstated.

4Who does the auditor report to?
  • Management, the audit committee (if there is one) or the Board.

  • Primarily the shareholders* (but also see 5 re management letters)

* In an unincorporated charity it will be the trustees.

5What sort of report will they receive?
  • Tailored report about how the risks and objectives (of the business area being audited) are being managed.

  • There is a focus on helping the business move forward - so expect there to be recommendations for improvement.

  • The main report is in a format required by Auditing Standards and focuses on whether the accounts give a true and fair view and comply with legal requirements

  • If other things come to light which the auditors think should be brought to management's attention they will be reported in a management letter

6What happens after the audit?This will be agreed internally, but can include:
  • Follow up to see whether recommendations have been implemented. 

  • Consultative help to guide management's implementation of recommendations..

  • There is no follow up requirement, until next year's audit; when in planning the audit, past issues should be considered.

7Are the auditor's reports publicly available?
  • No (at least not in the UK private or charity sectors). 

  • Yes. The main report on the accounts is publicly available.

  • Management letters are not publicly available

8Do we have to have an audit?
  • No, internal audit is discretionary.  

  • It depends. Legal requirements vary; although the trend has been towards more organisations being exempted from statutory audit. However stakeholders such as the bank or investors may require you to have your accounts audited.

Small and medium sized organisations usually can’t justify having an independent in-house internal audit function and outsourcing provides a flexible cost effective solution. If you’d like to find out how I can assist and about my approach, please feel free to contact me, David Lewis, on 07836 331677 or mail@camroseconsulting.co.uk .




    well understood

  2. Nice job. I like format of presentation and easy to understand explanations.

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