EXTERNAL AUDIT

THE DIFFERENT OBJECTIVE

The External Auditor
The external auditor seeks to test the underlying transactions that form the
basis of the financial statements.
The Internal Auditor
The internal auditor seeks to advise management on whether its major
operations have sound system of risk management and nternal control.

BACKGROUND TO EXTERNAL
AUDIT
Feature of the private sector EAs role
EA are generally member of CCAB professional accountancy
Their remuneration is fixed
EA have right to attend general meeting
EA have right to access all information pertaining to financial statement
In the limited company they can be removed by ordinary resolution with special notice
They cannot be officers, corporations or partners or employees of officers
In the event of resignation they have to provide a statement of circumtances
Where there is a problem with the accounts the auditor will fashion a suitable report to
reflect the nature of problem

THE MAIN SIMILARITIES

EI dan IA carry out testing routines and this may involve examining and analyzing many
transactions
Both EA and IA will be worried if procedure were very poor and/or there was a basic
ignorance of the importance of adhering to them
Both tend to be deeply involved in information systems
Both are based in a professional discipline and operate to professional standards.
Both seek active cooperation between the two functions.
Both are intimateky tied up with organizations systems of internal control.
Both are concerned with the occurrence and effect of errors and misstatement that affect the
final accounts
Both produce formal audit reports on their acivities

THE MAIN DIFFERENCES

The EI is an external contractor and not employee of the organization as is the internal
auditor
The EI seeks to provide an opinion on ehether the accounts show a true and fair view.
Whereas IA forms an opinion on the adequacy an effectiveness of systemes of risk
management and internal control
EI role is really much removed from the considerations of the IA both in term of objectives
and scope of work.
EI is al legal requirement for limited companies and most public bodies, while IA is not
essential for private companies and is only legally required in parts of audit sector
IA may be charged with investing fraud, and although the external auditors will want to see
them resolved, they are mainly concerned with those that materially affect the final accounts

IA cover all the organizations operations whereas EI work primarily with

those financial system that have a bearing on the final accounts
IA may be charged with developing VFM initiatives that provide savings
and/or increased efficiencies within the organization.
The IA reviews systems of internal control in contrast to the EA who
considers whether the state of controls will allow a reduced amount of testing
IA eowks for and on behalf of the organizations whereas the EA is technically
employed by and works for a third party, the shareholders
The IA cover is continuous throughout the year but the EA tends to be a yearend process even though some testing may be carried out during the year

THE AUDITING PRACTICE

BOARD (APB) STATEMENT
Things need to consider for EA before relying on IA works
The IA work should be properly recorded
The IA work should be properly controlled
IA should be adequately independent
The scope of the IA work should be sufficiently wide
IA should have sufficient resources
IA should be competent
IA should carry out its work with due professional care

TECHNIQUES TO MAKES COOPERATION AND

BETTER COORDINATION BETWEEN IA AND
EA
A common audit methodology
Joint training programmes
Joint planning of audit work
Direct assistance with each others projects
Exchanging reports

JOINT PLANNING OF AUDIT

WORK
Stage One
Copies of plans exchanged when complete

Stage Two
A joint meeting where plasn are discussed and harmonized-issued
separately

Stage Three
Regular meetings where fully integrated plans are issued as one
composite document

ANOTHER VIEW MODEL OF

AUDIT COOPERATION
1. Coexistence
2. Coordination
3. Integration
4. Partnering

THE EXTERNAL AUDIT

APPROACH
Auditors code published by APB in 1995
Accountability
Integrity
Objectivity and Independence
Competence
Rigour
Judgement
Clear Communication
Association
Providing Values

HM TREASURY
Benefits
Measures
Commitment
Consultation
Communication
Confidence

Co-operation
Internal control
Corporate governance
Reporting on financial statement
Compliance with laws and rags
Fraud and corruption
Performance indicator

Developing systems/major initiatives

Testing programms
Dispersed organizations
Value for Money (VFM)
Communications with audit committee