Comparison of Internal Audit and Independent Financial Audit

Internal Audit and Independent Financial Audit comparison

The following table lists some of the comparisons between Internal Audit and independent Financial Audit in terms of Objectives, Evaluation of Internal Controls, Error and Fraud, Scope of work and reporting, format of report etc.

1. Objective

Internal Audit: To ensure that the organization complies with the policies and procedures and also to satisfy that the resources are utilized economically by the organization.

Independent Financial Audit: Studies the actual operation of internal control to evaluate and decide about the nature, timing and extent of the substantive procedures.

2. Evaluation of internal controls:

Internal Audit: Studies the actual operations of the internal controls and evaluate their effectiveness. The evaluation is in depth by means of (a) Internal Control questionnaire (b) Flow charting etc.

Independent Financial Audit: Studies the actual operation of internal control to evaluate and decide about the nature, timing and extent of the substantive procedures.

3. Error and Fraud:

Internal Audit: The primary concern of the internal audit is prevention and detection of error and fraud.

Independent Financial Audit: Prevention and detection of errors and fraud is only a secondary objective.

4. Scope of work and reporting

Internal Audit: The scope of work is determined by the management and the internal audit report is presented to the management. The nature and scope may differ from organisation to organisation.

Independent Financial Audit: In statutory audit, the scope of work is governed by the Statutes such as Companies Act, Income tax Act etc. In statutory audit, the report is addressed to the shareholders in the case of companies and to the appointing authority in the case of others.

5. Report:

Internal Audit: There is no specific format for reporting and the report is presented as per the requirement of the management i.e., monthly, quarterly, half yearly, etc.

Independent Financial Audit: Report should be in a specified format and the report is presented only once i.e., after the completion of the audit.

6. Time of Audit

Internal Audit: Internal audit is continuous and carried out throughout the year.

Independent Financial Audit: Statutory audit is conducted after closing of accounts and preparation of financial statements

7. Suggestion and recommendations:

Internal Audit: The internal audit evaluates the efficiency of the operations and make suggestions and recommendations to improve the efficiency of the functioning of the organizations.

Independent Financial Audit: The statutory auditor is concerned only with the reliability of the financial records and financial statements

8. Independence

Internal Audit: The work will be focused on the interest of the management

Independent Financial Audit: Statutory auditor is independent

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