15.6 Your firm has been external auditor of Elgol ple for some years. Elgol has
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Question
15.6 Your firm has been external auditor of Elgol ple for some years. Elgol has an internal audit department, engaged in both compliance and operational auditing. You have a good opinion of the quality of internal audit work and have established a good relationship with John MacLean, the head of internal audit. He has asked you to give a talk to the members of his department during their annual training week. He would like your views on the different roles of external and internal auditors, the type of work that each carry out and their reporting responsibilities.Explanation / Answer
I would the following view on various aspects of internal and external audit to John MAc Lean:
Internal and external audits are complimentary to each other. Both the functions are designed to ensure the highest quality of financial reporting. An external auditor's role is focused one examining the financial records and give an poinion whether view of the company's affairs represented by the financial statements is true and fair. The external auditor is basically following a statute or law while performing his role.
An internal auditor evaluates the company's procedures and identifies risk areas. It is the role of the internal auditor to improve the effectiveness of the firm's processes and bring corporate governance.
An external auditor inspects the financial records of the client and expresses an opinion on them. He selects samples from the population and documents his audit findings. An external auditor makes sure that the reporting and accounting methodology adopted by an organization is in line with the applicable statute or GAAP.
An internal auditor analyzes and monitors the risks and controls within the organization. An internal auditor digs deep into the operational procedures of a company to identify any gap which might put the company at any kind of risk. The inherent risk and systematic risk are looked into in detail by the internal auditors.
An external audiors reports to the company's shareholders whereas an internal auditor reports to the management.
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