External and Internal Auditors Are Friends and Not Foes
External and Internal Auditors: Friends or Foe.External and internal auditors are friends and not foes .The coordination of external and internal auditor’s activities is very crucial to both sides:from the internal auditors’ perspective, this coordination ensures an effective risks control assessment. While from the external auditor’s point of view, this relationship enhances the efficiency of financial statements auditing. . This paper will support the statement, ‘’external and internal auditors are friends and not foes’’ (Omoteso 23). It will focus on the role of each, in terms of similarities, differences and how both the external and internal auditors relate to ensure a smooth running of their procedures.
Differences between external and internal auditors
Appointment; external auditors are nominated to office by the votes of shareholders in a given company. They must be appointed from a different external company independent of their own. On the other hand internal auditors are hired and employed by the management of the company they work for.
Objectives; the objectives of the internal auditors is set by the management. They help the organization to accomplish its goals by managing risks, being involved in governance processes and internal controls. They are concerned with both the financial and none—financial aspects of the organization which enables them to focus on future occurrences due to their continual evaluation and review of control processes. On the contrary, the primary objective of the external auditors is to examine the financial records and history of the company and present a report in regards to the financial statements of the given company.
Independence; external auditors are independent from their client, which is the organization, this independence being particular in liberal professions whilst the internal auditors are independent from the audited activities in their organizations.
Approach of internal control; external audits are involved in the internal control of an organization in terms of finances which allows them to eradicate errors that may alter the financial results while the internal auditors are involved in all the aspects regarding to the organization’s internal control systems, both the financial and non-financial aspects.
Responsibilities; the external auditors are solely responsible to the shareholders of the company who could be the owners, the government or any private or public entity, they report to the shareholders, on the other hand the internal auditors are responsible to the company’s management which is their employer.
The frequency of the audit; internal auditors perform their auditing procedures throughout the year (Barr 41). Having specific missions that have been established in accordance to the level of risks, and identified in each audited entity while the external auditors do their auditing once at the end of each year,as a rule
Similarities between external and internal auditors
Internal control systems; both the external and internal auditors concern themselves with organization systems of internal control, authenticated procedures and relevant implementation. In addition both are involved in information systems, since it is the major aspect of management control and a fundamental element of the financial reporting process.
Testing; the external and internal auditors carry out tests and routines that involve analyzing and examining many transactions within the organization. When the internal auditors carry out tests regarding all the financial and non-financial aspects of the organization, the external auditors perform tests only on the financial aspects, identify and eradicate mistakes and errors that may affect the final financial records.
Cooperation; Both seek to actively cooperate with each other in order to run their functions smoothly since their activities are interdependent. Coordination and cooperation between the external and internal auditors is very crucial in ensuring that there is excellent job done in the company’s audits
Both the professions of external and internal auditors are governed by the same international standards offered by the professional organism tailored for each profession.
They both observe and analyze the manner into which the organization runs its business operations. Both the external and internal auditors keenly scrutinize the organization’s operations and activities.
Both the internal and external auditors assess the possibility of theft or fraud, and both compare rules, regulation and laws with the actual operation and the running of the firm to ensure that the company is in accordance to the legal requirements.
Similar sets of skills, expertise and job qualifications, this allows them to work together in improving the efficiency and quality of the company’s audits.
Both external and internal auditors use audit reports to present the results of their activities. (AGuy and Blanco-Best 23). After the external and internal auditors have carried the necessary tests, they present the results in form of audit reports.
The relationship between the external and internal auditors
The external and internal auditors should meet often since there are certain auditing tasks that are supposed to be performed by both of them. This-coordination reduces repetition of certain procedures and auditing tasks in a given company. If a certain process will need redundancy, conflicts over the use of some resources required by both of them is prevented by scheduling their activities properly. The exchange of ideas between the two parties leads to an excellent work understanding and coordination of their respective roles. For instance, the information technology systems which are used, how the company uses them, and the organization’s accounting activities are all aspects which are beneficial if only both the external and internal auditors would cooperate.
The coordination of both internal and external auditors can establish the effectiveness of audit’s financial statements (Moeller, et al. 48). For the internal audit is a bonus of indispensable information to evaluate the risks. The International Standards of Audit for instance the ISA 610 put more pressure on the importance of the association linking internal and external audit. It is important for the external auditors to have an understanding of the internal audit activities in order to make out and evaluate the risks, in addition to giving recommendations for the audit procedures. It is essential for the internal and external auditors to meet more often in order for them to be effective and successful in their endeavors.
Good cooperation and coordination is important for both the external and internal auditors; both professionals should build proper working relations. When both the internal and external auditors perform their functions together, there will be increased effectiveness and quality of the systems in the organization. When the external auditors work together with the internal auditors it will result to decreased number of tests carried out, eventually this will lead to reduced fees. Since, there are many advantages of the coordination between internal and external auditors, finding out how to improve their professional activities would be of great importance. Auditors (Coordination and Cooperation between Internal and External Auditors432).
It is important to know how the internal and external auditors’ roles could be harmonized. It is evident that the internal and external auditors have to work together as friends and not foes in order to be effective and productive. One party can never work alone and be effective, there is need for both parties to work together in order to establish the set goals.