After the financial crisis in the first part of the 21st century, numerous regulatory and protection acts were enforced to assure individuals, investors, and the boards and management of organisations about such companies’ financial and operational integrity. As a result, individuals associate the term audit with external auditing teams of Certified Public Accountants tasked to review organisations’ accounting to assure the accuracy of the financial information. Our professional auditors at GCS Malta are here to outline the differences between internal and external auditing and why internal auditing is crucial.
External audit.
The external auditor maintains a specific focus, reviewing primarily financial information and mainly looking into the records and reporting of the organisation. With an external audit, it is difficult to diversify and provide an independent study critical in the external review process of the company’s financial reporting. For this reason, having a separate internal audit team is advised.
Internal audit.
According to The Institute of Internal Auditors, “internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.”
The internal auditor has a broader focus on financial information, operational objectives, risk management concerns and compliance. Both past and current operational goals and future risk mitigation, and organisational success are of interest to the internal auditor. The internal auditor may have a much more diverse background that includes expertise in information technology, business administration, finance, data analytics, and accounting, to name a few.
Protecting your organisation against current and future risks is of utmost importance; hence having an internal audit is beneficial for the company. Having an internal audit partner experienced in numerous operational approaches and numerous industries allows for a more comprehensive plan and review.
Outsourcing internal audit.
Having a team of outsourced employees who are highly skilled in internal auditing holds several benefits for your company instead of an employee-only internal audit function.
- An independent internal audit review allows for control of employment costs related to the internal audit function. Many organisations may not have the size and cash flow to support a full-time audit staff. Even in larger organisations, using a combination of employee and consultant internal auditors allows for flexibility for expenditures in this area.
- Independent consultants will often specialise in particular industries and bring an in-depth knowledge of that industry, utilising years of experience to support an internal audit function within an organisation, regardless of the age or understanding of the particular organisation.
- Independent consultants are often aware of issues, both industry-specific and general, that the individual organisation may not be privy to, thereby being able to offer guidance across those areas to help alleviate the risks and possible negative impact on the organisation.
- An independent internal audit review allows an unbiased assessment specific to the organisation’s industry of operation. This allows for new ideas to be communicated to improve efficiency and effectiveness of operations, improve internal controls, and reduce risk.
- The independent audit function often results in the development of benchmarks, which management and employees may use as a standard to measure performance.
- There is an element of independence added to the internal audit function that may not be effectively realised using only employee internal auditors directly paid and possibly influenced by the organisation itself.
- The independent approach allows for outside consulting and advisement of industry best practices, enabling the organisation to generate a set of operational standards by which the internal audit team can examine and judge compliance, resulting in a more in-depth internal audit.
Why GCS Malta?
At GCS Malta, our team of experienced auditors are here to aid your business in your internal auditing needs. With years of experience and knowledge, we can provide you with audits designed to review your company’s activities to identify potential threats to the organisation’s health and profitability whilst also providing suggestions for mitigating the risk associated with such threats to minimise costs. Contact us today!
