Difference Between Internal Audit and External Audit in UAE

Audits are the soul of businesses. They help organizations keep a tab on their financial health, growth, and risk management. Despite being an essential internal control process, external audit is often misunderstood by most people. While the internal audit is an integral part of any company, an external audit is rarely needed or done. If you’re looking to understand the difference between internal audit and external audit in UAE and how to choose one over the other, we have got you covered! Read about the benefits of external audits, the advantages of internal audits, and how to choose between the two.

Understanding Internal and External Audits

• External auditors are external experts who conduct audits of companies in the UAE. They evaluate the financial statements and internal controls of the company and report the findings to shareholders, creditors, and regulators.
• The primary difference between internal auditors and external auditors is that external auditors are independent auditors who perform external audit services for a business.
• Auditing is the process of inspection and evaluation of financial records to ensure their accuracy. It involves evaluating the internal control environment within an organization and assessing the risk associated with financial statement preparation and audit process.
• Internal auditors review internal control activities to identify possible risks or flaws in the internal control environment. They also assess the overall effectiveness of internal control policies, procedures, structures, and materials.
• Internal auditor training courses help participants understand the audit process from initiation to closure of audit assignment and report preparation. They also provide hands-on experience on various audit processes such as audit planning, audit execution, audit conclusion, etc.

Benefits of an External Audit

• An external audit of financial statements by an auditor is a statutory audit that provides an opinion on the financial statements of a company.
• This ensures the correctness and accuracy of the accounting records. An external audit provides assurance about the financial statements and helps in auditing the internal controls.
• It answers the question of whether the company’s financial statements represent a true and fair view of its financial condition and performance.
• A statutory audit also allows businesses to operate with a robust legal framework in line with international standards and a clearly defined taxation policy. External audits provide organizations with essential skills and knowledge to conduct auditing effectively. So, they are always recommended when conducting internal audits.

Advantages of Internal Audits

Internal audits are essential for companies in the UAE to ensure the accuracy and correctness of accounting records. Conducted to evaluate the effectiveness of internal controls and ensure the financial statements represent a true and fair view,

Internal audits can help detect potential fraud and errors, saving the company from potential loss and harm. In addition, internal auditors provide assurance that the company is compliant with statutory requirements. As such, not only do they help improve financial reporting but also contribute towards a safe and sound environment for all stakeholders.

Difference between Internal and External Audits in UAE

• Internal auditing is conducted by internal Auditors in UAE for the purpose of assurance and assurance of management on the financial statements of the organization.
• External Auditors in UAE are hired by external auditors to audit the financial reports of a company. External audit report expresses an opinion on the financial statements and provides assurance and assurance of management on the financial report of the company.
• As per the Companies Act, 2013, internal audit is mandatory for some companies falling under the criteria as prescribed in the Act while for others it is discretionary. In case of internal audit, internal auditor carries out various tests and checks to assess the effectiveness of the internal control system.
• The external audit ensures the correctness and accuracy of accounting records. It promotes confidence in financial reports. Internal auditor helps to identify deficiencies in systems, processes, and controls to improve the efficiency and effectiveness of internal controls.
• Internal audits provide skills, knowledge, and understanding of principles and practices of internal auditing of Quality Management Systems. The main objective is to enhance efficient operations and assure governance, competence, and compliance with established frameworks in an organization.

How to Choose Between an Internal or External Audit?

There are many reasons why internal or external audit is preferred by most companies. External auditors are authorized by the government and are held accountable for their work. Their audit reports are legally binding documents and can help businesses understand their financial condition, risk profil, and external financial performance.

Internal audits, on the other hand, are conducted by internal auditors who have undergone rigorous training and are entrusted with the responsibility of ensuring that a company’s internal controls function smoothly. Both internal audit processes bring value to the businesses in terms of assurance of quality services, continuous improvement of internal systems, and governance. But internal auditors must be trained to bring them to the internal auditor level so that they can identify any deviations from the prescribed processes or procedures in a company. Hence, it is vital to understand the purpose of the audit before making a choice between an external audit or an internal audit.

Conclusion

In the end, internal audit wins owing to the cost-effective nature of the process. Having said that, an external audit is not a ‘bad’ option by any means. In fact, it’s a great way to prove your company is trustworthy and valid before the public. If you’re still wondering whether an internal or external audit would work better for your business, we’ve got a solution. You can always conduct an internal audit to check the strengths and weaknesses of your business and then plan external auditing according to the results of internal auditing. To know more about internal auditing and external auditing, feel free to contact Reyson Badger.