studies that permitted us to emphasize the main criterions that influenced the relationship between internal audit and external audit. Keywords: internal audit. Internal audit and external audit are two distinctive functions but they are complementary relationships. Based on several studies that I read, I am going to sum. Very large organisations (and some small ones) have found a need for an internal audit in addition to an external audit. Internal auditors are.
Appointing or terminating the head of the internal audit department, or at least issuing relevant recommendations, is also part of the committee activities. The scope of the internal and external audit functions are also determined by the audit committee.
However, in this section of the paper, I would focus only on its relationships with internal auditors and external auditors [ 25 ]. Relationships with internal auditors Listing all the tasks of the internal auditors is beyond the scope of this paper.
However, I would refer to the tasks that are directly related to the audit committee activities as follows: The relationship between the audit committee and the internal auditors is important for both parties to fulfill their job commitments [ 26 ].
The audit committee is concerned with recruiting and terminating the head of the internal audit, and the frequency and duration of the meetings with the internal auditors [ 27 - 29 ], as well as ensuring that the internal auditors, especially their head, can communicate directly with the audit committee anytime.
Whereas the oversight of financial reporting and the monitoring of the internal audit performance are two of the main activities of the audit committee, it is mandatory that the audit committee members, or at least one of them, should have the financial or accounting expertise in order to understand the technical and control issues related to the internal audit to enable the audit committee to review the internal auditors activities and the results they reach to.
Whenever there are problems or obstacles, the audit committee performs the necessary investigations using internal feedback, its expertise, and external consultations if needed. Two important related issues i.
Relationships with external auditors Likewise, listing all the tasks of the external auditors is beyond the scope of this paper. Changing the external auditors also requires direct interference by the audit committee. The AICPA requires that external auditors communicate with the audit committee formally as a main part of the audit performance [ 32 ].
The Relationship Between Internal & External Audit | Bizfluent
Additionally for independence purposes [ 33 ], the audit committee may review any non-audit service agreements with the external auditors to understand the nature and magnitude of relevant fees paid. Most, if not all, of the aforementioned audit committee activities and relationships are related directly or indirectly to the audit committee roles in corporate governance [ 34 ].
The increasing demand on the corporate governance and accountability related to the board of directors, particularly the recent lawsuits and investigations made the creation of audit committees an extremely necessary step.
The SEC confirmed its interest in audit committees by: Inthe National Committee on Fraudulent Financial Reporting the Treadway Commission was created to identify factors that can lead to fraudulent financial reporting and recommend procedures to reduce fraud incidences.
The Treadway report identified audit committees as effective means for corporate governance and suggested a list of objectives for audit committees to consider. Internal auditors usually work directly for the company.
External auditors may examine the firm in great detail to verify the accuracy of financial statements, but they don't concern themselves with the specifics of running the company. Internal auditors, on the other hand, try to optimize every process and task to achieve greater efficiency. Interaction Internal and external auditors for the firm should meet periodically.
There are certain tasks performed by both, and coordination between the two avoids redundancy. If the process desires redundancy, scheduling prevents conflicts over the use of various resources needed by both. Exchange between the two groups results in better work coordination and understanding of their respective responsibilities.
Annual audit plan and performance against that plan.
Position paper: Internal audit's relationship with external audit
The external auditor will also want to read copies of the reports issued during that financial year and meet with the Chief Internal Auditor, or equivalent. Involve making significant judgements in the audit Relate to higher assessed risks of material misstatement where the judgement required in performing the relevant audit procedures or evaluating the audit evidence gathered is more than limited.
Relate to work with which the internal auditors have been involved and which has already been or will be reported to management or those charged with governance by the internal audit function.
Relate to decisions the external auditor makes in accordance with the ISA UK regarding the internal audit function and the use of its work or direct assistance.
Advantages of coordination and collaboration between external and internal audit Close communication and planning ensures that audit resources can be directed towards the area of most need i.
This means that internal audit can plan their work to minimise duplication with external audit testing and to provide assurance over those systems and controls on which external audit may wish to place reliance, subject to appropriate review procedures being applied. The audit teams can plan the timing of their work to minimise disruption and interference with key members of staff. The audit team can share intelligence on key events, changes and plans that may impact on the risk profile of the organisation and therefore, on their work.
This may result in high demand for limited resources and the Head of Internal Audit will need to ensure appropriate compromises are reached.