QuestionHow do internal and external auditors complement each other in their respective roles as they both strive to make a notable contribution to the discipline of corporate governance.
AnswerExternal shareholders are selected by the shareholders of a business. They must be independent from the business (i.e. from a different company), and also responsible to the owners of the company, as such they are free to scrutinise every aspect of a company’s accounts. On the other hand, internal auditors tend to be employees of a business. This means that the senior management team of a business is usually in control of the internal auditors. Internal auditors examine the risks facing the company and determine whether the company is managing these risks effectively and meet its strategic objectives. They are usually responsible for recommending improvements across the different departments. External auditors focus purely on financial accounts. They assess the risks of the accounts being materially misstated, in other words they assess whether the annual reports of the company give a true and fair view of the company’s position and ensure that they are prepared in line with the legal requirements. As can be seen, internal audit and external audit are two distinctive functions. However, they can complement each other as they seek to find and recommend ways to minimise the different risks facing a company. This helps to ensure the company is managing the business and financial risks well. Furthermore, the external auditors are there to ensure the company is preparing the financial accounts in accordance with the legal requirements. External auditors may also assess internal audit functions, when internal auditing is relevant to the external auditor’s risk assessment.
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