Case Study: Internal Audit vs$.$ External Audit

In a large manufacturing company, the management team has recognized the importance of maintaining financial integrity and compliance with regulations. To achieve this, they implement both internal and external audit processes.

Internal Audit:

The company appoints an internal audit department consisting of qualified professionals who are employees of the company. Their primary responsibility is to assess the company's internal controls, risk management processes, and operational efficiency. They conduct regular audits of various departments and processes within the organization to identify weaknesses, recommend improvements, and ensure compliance with company policies and procedures. Internal auditors also play a crucial role in fraud prevention and detection by evaluating financial transactions and scrutinizing internal systems for any signs of irregularities.

External Audit:

On the other hand, the company engages the services of an external audit firm to conduct an independent examination of its financial statements and accounting records. These external auditors are not employees of the company but are hired on a contractual basis. Their main objective is to provide an unbiased opinion on the accuracy and fairness of the company's financial reporting. They assess whether the financial statements present a true and fair view of the company's financial position, performance, and cash flows in accordance with applicable accounting standards and regulations. External auditors also evaluate the effectiveness of internal controls related to financial reporting and provide assurance to stakeholders, such as shareholders and creditors, regarding the reliability of the company's financial information.

Objective type question:

Based on the case study, what is a key difference between internal audit and external audit processes in the company?

a$)$ Internal auditors are employees of the company, while external auditors are not.

b$)$ External auditors primarily focus on operational efficiency, while internal auditors focus on financial reporting.

c$)$ Internal audit reports are submitted to regulatory authorities, while external audit reports are for internal use only.

d$)$ External auditors are responsible for fraud prevention, while internal auditors assess financial statements.