Expert: Don Sadler - 5/1/2006

Question
What's the relationship between Internal and External audit

Answer
External and Internal Auditing - Differences

There are several differences between internal and external auditors that result in a symbiotic relationship that is both collaborative and adversarial.


External Auditors are required by the SEC for publicly traded companies.  Their purpose is to attest to the accuracy of financial statements.  In so doing, they are, by definition, focused on the past (backward looking).

Internal Auditors, on the other hand, are typically more process (solutions) oriented.  As such, they tend to be more focused on the future (forward looking).  Internal Auditors also have a fiduciary relationship to management.  In other words, they are on the same “team” as the company for which they work whereas the External Auditors are not.

This means that the Internal Auditors sort of “run interference” for the company to ensure that internal controls exist and are effective so that the External Auditors cannot find anything wrong and issue a negative opinion.

If the External Auditors issue a negative opinion or will not attest to the accuracy of the financial statements then the credit rating of the company goes down (since they are more of a risk to a lender), that follows by an increased cost of capital (borrowing money become more expensive due to a higher interest rate based on the increased risk).  When cost of capital increases, profit decreases as does earnings per share.

Hope this helps.  Paste the following advanced search into your browser window for further leads.

http://www.google.com/search?as_q=external-auditors+internal-auditors+relationsh...