Internal Audit
An internal audit is distinct from the external audit in being more comprehensive, broader and covers all financial, administrative, regulatory and operational aspects.
An internal auditor:
- Inspects daily journal entries and help correct detected errors in accordance with internal regulations, applicable laws and accounting standards.
- Works on the application of accounting principles used in the facility.
- Ensures the presence of supporting documents for all recordings.
- Inspects of signatures required for all transactions.
- Properly archives of data and documents.
- Contributes to the generation of financial statements.
- Follows management direction and the task assigned to him by management.
- Signs the financial statements since they are generated under his supervision and responsibility.
- Does not express an opinion on the financial statements and results.
- Is an employee or contractor of the company.
- May be associated to a manager through family relationships, employment or other financial ties outside of the company.
- Is not necessarily a certified and registered auditor.
An external auditor may rely on the internal auditor reports, thus reducing his efforts. However, an internal audit is not a substitute to an external audit.
The most important differences between an internal and external auditor are:
| Subject | Internal Auditor | External Auditor |
|---|---|---|
| Link to the facility | A functional link / is part of the establishment | Contractual link / independent of the establishment |
| Appointment | Appointed by management and / or by the Audit Committee | Appointed by the General Assembly |
| May work for or have an affinity with one of the members of the Board of Directors or one of the officials or managers | May not have an affinity up to the third level with a member of the Board of Directors | |
| Work assignments | Review of all financial and administrative operations | Auditing of financial statements and review of processes on a sample basis |
| Financial statements | Contributes to the production of financial statements | Audits and express an opinion on the financial statements |
| Internal control system | Contributes to the establishment of an internal control system | Checks the extent of compliance with internal control system |
| Independence | Complies with the instructions of management | Works with complete independence from management and the Board of Directors |
| Subsequent events | Does not research the events subsequent to the balance sheet date | Researches the events subsequent to the balance sheet date |
| Expressing of opinion | Does not express an opinion | Has the duty of expressing an opinion |
| Signing | Signs statements and reports issued by him | Only signs the report issued by him |
| Reporting | Directs periodic reports to management | Directs his final report to the General Assembly |