Question

a) According to the IIA the ‘Internal auditor should develop and record a plan for each engagement, including the scope , objectives, timing and resource allocation." The same can be said about the EA (external auditor). Compare and contrast engagement planning for the IA and EA. How does the control environment relate to engagement planning? Also what role does SOX have on the control environment and audit planning?

b) Do you think internal auditors can ever be truly independent, since they are employed by the company?

Answer 1

There are multiple differences between the internal audit and external audit functions, which are as follows:

1. Internal auditors are company employees, while external auditors work for an outside audit firm.

2. Internal auditors are hired by the management, while external auditors are appointed by a shareholders.

3. Internal auditors do not have to be professional, while the external auditors must be professionals.

4. Internal auditors are responsible to management, while external auditors are responsible to the shareholders.

5. Internal auditors can issue their findings in any type of report format, while external auditors must use specific formats for their audit opinions and management letters.

6. Internal audit reports are used by management, while external audit reports are used by stakeholders, such as investors, creditors, and lenders.

7. Internal auditors can be used to provide advice and other consulting assistance to employees, while external auditors are constrained from supporting an audit client too closely.

8. Internal auditors will examine issues related to company business practices and risks, while external auditors examine the financial records and issue an opinion regarding the financial statements of the company.

9. Internal audits are conducted throughout the year, while external auditors conduct a single annual audit.

Hence Internal cannot be truly independent sine they are appointed by management.