When annual audit time rolls around, every employee lets out a collective sigh. The audit is typically seen as a stressful experience, whether the business is undergoing an internal or an external audit. You may see both types of auditors as nit-picking outsiders, but they play an essential role in keeping all aspects of a business running smoothly.
What is an internal audit?
During an internal audit, a representative from within the company conducts a thorough examination of not only the financial aspects of a business, but other arms of the business as well. An internal auditor checks on aspects that can be changed to minimize financial costs and risks.
Although the internal auditor does examine the fiscal side of things, they put more emphasis on the business operations as a whole. The internal auditor checks to see if employees are following the company standard procedure, be it related to accounting or customer interactions. Internal audits seek to implement improvement. Since internal audits aim to remedy shortcomings, the internal auditor remains involved by acting as an advisor. She or he may create a plan for improvement.
What is an external audit?
Unlike internal audits, external audits are carried out by third-party entities, usually a certified public accountant. Since an external auditor is not a company employee, you’ll be subject to a totally unbiased audit. While an objective audit has its advantages, external auditors aren’t privy to company policy and culture, like an internal auditor would be. If you’re a small business owner without an official auditor or work for a huge company that needs an unbiased look, you’ll probably get an external audit.
The scope of external audits is solely on financial reports. External auditors review financial statements in search of any discrepancies, regardless if the mistakes were intentional or not. While an internal audit is making sure the audited business is following the company standards, an external auditor uses a broad standard as her or his guide, such as the International Financial Reporting Standards. Once everything is said and done, the external auditor is not obliged to oversee improvement. However, she or he can be hired for further financial counsel.
Internal and external auditors don’t randomly show up at your business and surprise you with an audit; they do take mercy, and will notify you prior to the audit. You should see the auditor as an ally and properly prepare for the annual audit. After all, by making the auditor’s job easier, you’ll find the ordeal to be much less painless than you expected.