Learn What’s the Difference between an Internal Audit and External Audit

Audits are integral procedures in organizations through which they aim to improve their processes and make effective decisions for the business. Audits must be done at regular intervals and they are often referred to as a strategic improvement tool that helps organizations to fine-tune their processes as well as management systems. They are most crucial for your organization when you implement an ISO management system and needs to maintain its compliance. While audits mainly include two types: internal and external, you need to first know the true definition of audits to better understand each. Here we have explored them to help you learn what the difference between an internal audit and external audit is. Take a closer look at the two types of audits.

Difference between Internal and External Audits: A Comparative Evaluation

An audit is an independent and thorough assessment of the organization’s processes, management systems and their performance to uncover further areas of improvement. Both the internal and external audits are complementary and so performing both can provide you with the best objective assessment of your organization’s performance. However, you need to understand the purposes, objectives, methodologies and areas of focus for the two to successfully conduct them. But before that, you should learn their definition.

What is an Internal Audit?

An internal audit is a planned and unbiased assessment of the organization’s operations conducted by dedicated members from within the organization (i.e. employees). Its key purpose is to review the day-to-day activities of the business to ensure that they are running efficiently. The main objective is to discover mistakes, nonconformities, or performance issues in those operations and suggest necessary measures to resolve them. Therefore, considering the purpose of internal audits, here are key functions that it includes:

• Evaluation of management systems and routine operations
• Physical verification of products, inventory, infrastructure, and other tangible assets
• Analyzing of financial, capital and other accounting information
• Thorough evaluation to detect risks, fraud, or breaches in any processes or systems

By carrying out an internal audit, you are able to add value to your organization by making necessary improvements. The employees who conduct the audit are called internal auditors and they must possess assessment skills, should have an eye for detail, and must be able to objectively examine the operations and management systems. Therefore, internal auditors form a separate team within the organization whose sole responsibility is to perform periodic audits throughout the year.

What is an External Audit?

The external audit is the formal and independent assessment of your organization’s processes and systems by an appointed team from outside the organization i.e., a third-party body. The body must be accredited and recognized for the purpose of conducting different audits. Here the key purpose is to provide assurance to the organization’s stakeholders or different interested parties about your business performance. Fair conduct and passing of an external audit demonstrates that your organization is performing efficiently, there are no risks in any areas or processes, and you are complying with the regulations of the standards, whichever is applicable.

Therefore, the main aim behind conducting an external audit is to publicly show your organization’s performance or compliance record. The key activities of external audits are almost the same as that of internal audits. However, in an external audit, there is a need for early planning as the employees of your organization need to be prepared and must be able to coordinate with the external auditors.

Comparative Analysis of Internal and External Audits

While you may understand the meaning and purpose of both types of audits, here is a comparative analysis of them. There are numerous differences and knowing them can help you understand why they are complementary and you need to conduct both.

• An internal audit is performed on a continuous basis at short intervals (3-6 months) by the internal audit team while the external audit is mostly conducted annually. Sometimes, it may be conducted quarterly. It is also conducted when an organization awaits a certification/recertification to an ISO or any other standard. The external audit is required to get a second opinion on your processes or management systems after getting the opinions of internal auditors.

• The main purpose of an internal audit is to review your business operations for determining their effectiveness and to find any aspect that can be improved or changed. In contrast to this, an external audit aims at minutely analyzing your operations to determine their relevancy, consistency, and accuracy to a given standard or regulations.

• An internal audit report presents a summarized view of your organization’s performance and effectiveness of the management systems and process. As opposed to this, an external audit report gives an honest and clear view of your organization’s compliance.

• The internal audit report is handed over to the management team of the organization. They then discuss its different points with department heads to decide the corrective actions or improvements required. The external audit report is handed over to stakeholders who want to verify the reliability and consistency of your organization.

Final Takeaway

To put it simply, an internal audit helps to improve your business from within i.e., it facilitates improvement in the routine operations, management systems, and even employee performance. It drives continual improvement of the productivity of your business. On the other hand, an external audit ensures what your business or your internal auditors claim about your operational efficiency is true and accurate. It verifies to the outside world i.e., stakeholders that your business is reliable and running efficiently, so they can trust you. An external audit hence helps to strengthen your business’s relationships with stakeholders.

Clearly, internal and external audits are not opposite of each other, but they balance each other. In fact, external auditors seek internal audit reports to get a comprehensive view of your business processes and the state of compliance with a given standard/standards. Thereafter, they check the processes to gain their own viewpoint. Hence, both are essential to run your operations smoothly and efficiently while maintaining conformity to the rules and regulations which apply to your business.

If your organization needs to carry out an internal audit for quality or any other certifications, we at Compliancehelp Consulting LLC have a team of internal auditors who can get it done. We assist organizations that lack experts or auditing skills to perform their internal audits. Our experienced team can perform an unbiased and meticulous audit to give you reliable outcomes. To hire us, get in touch today with our team!