Chapter 5
Internal audit
Internal audit is an appraisal/monitoring activity established by the entity within the entity
to provide services to that entity itself.
Difference between external and internal audit
External audit Internal audit
The objective of an external audit is to give The objective of an internal audit is to
an opinion on financial statements. improve operations.
External auditors are not the employees of Internal auditors are the employees of the
the company. company.
External auditors are appointed by the Internal auditors are appointed by the
shareholders and they report to them. management of the company and they
report to them
External auditors are paid a fee for their Internal auditors are paid monthly salaries.
work
Scope of the work external auditors do is Scope of work the internal auditors do is
defined by the I.S.A’s. determined by the management of the
company.
To be an external auditor a qualification To be an internal auditor no membership in
along with membership in a professional a professional body nor a qualification is
body is required. required.
Tasks internal auditors are asked to perform :
Since internal auditors are employees of the company they can be asked to perform any
task, however they typically carry out the following tasks.
. V.F.M ( value for money audit ) : In value for money audit internal audit department
evaluates weather company is achieving the 3 E’s ( economy ) ( efficiency ) and
( effectiveness ) on any of the tasks it performs.
. Compliance audit : compliance means following the laws and in a compliance audit the
internal audit dept is supposed to asses what the laws and rules are which the compay has
to comply with and then weather the company is complying with them or not. A compliance
report is usually asked for.
. Best value audit : In best value audit internal audit department is asked to check weather
the company is giving best value to its customers or not. This is usually done by comparing
our own company with the other competitors in the market.
Internal audit
Internal audit is an appraisal/monitoring activity established by the entity within the entity
to provide services to that entity itself.
Difference between external and internal audit
External audit Internal audit
The objective of an external audit is to give The objective of an internal audit is to
an opinion on financial statements. improve operations.
External auditors are not the employees of Internal auditors are the employees of the
the company. company.
External auditors are appointed by the Internal auditors are appointed by the
shareholders and they report to them. management of the company and they
report to them
External auditors are paid a fee for their Internal auditors are paid monthly salaries.
work
Scope of the work external auditors do is Scope of work the internal auditors do is
defined by the I.S.A’s. determined by the management of the
company.
To be an external auditor a qualification To be an internal auditor no membership in
along with membership in a professional a professional body nor a qualification is
body is required. required.
Tasks internal auditors are asked to perform :
Since internal auditors are employees of the company they can be asked to perform any
task, however they typically carry out the following tasks.
. V.F.M ( value for money audit ) : In value for money audit internal audit department
evaluates weather company is achieving the 3 E’s ( economy ) ( efficiency ) and
( effectiveness ) on any of the tasks it performs.
. Compliance audit : compliance means following the laws and in a compliance audit the
internal audit dept is supposed to asses what the laws and rules are which the compay has
to comply with and then weather the company is complying with them or not. A compliance
report is usually asked for.
. Best value audit : In best value audit internal audit department is asked to check weather
the company is giving best value to its customers or not. This is usually done by comparing
our own company with the other competitors in the market.
