How Do External and Internal Audits Differ?

Audits are very important to take care of company’s financial health as it helps us to understand the condition and issues of the company. But many people get confused between two types of audits, the external audits and internal audits. They both have their own significance and jobs to benefit the company. In this article, we will explain the main differences between external as well as internal audits. We will also talk about how each helps your business run smoothly and how to choose the right audit experts.

What Is an External Audit?

An external audit means when a company’s financial records are checked by any of the independent accounting firms that are not related to the company being audited. It ensures the review is fair and honest. The main goal of an external audit is to see if the company’s financial reports are reliable, complete, and follow the international accounting and auditing standards. The audit results help investors, banks, and government officials to determine that the company is reporting its money matters with honesty and integrity.

Choosing the right audit firm is key for getting valuable and effective outcome from the audited accounts. However, most of the companies do not know the parameters to be kept in consideration while selecting the right auditing company. These parameters range from firm’s size, number of employees including managers and partners and their qualifications, international certifications, relevant industry experience, regional offices, and a lot of other factors. For these reasons, we have put together a detailed list of top 10 audit firms in Dubai, factoring in all these parameters to make your choice easier. These firms specialize in external audits and are well known for their expertise. 

The Importance of External Audits

Build Trust in Your Business: When an external accounting firm audits your financial records, it shows your clients and investors that your financial records can be relied upon. An unqualified audit report can improve your company’s image as well as make investors more willing to support your business.

Follow the Rules and Avoid Penalties: External audits help to make sure you are following all the laws and financial rules applicable in the UAE. Audits also help you spot errors or frauds on time to allow you to take preventative measures. 

Catch Problems Early: Independent auditors provide an independent view of your financial health. They have the ability to identify even the tiniest problems and issues before they become significant issues. Their guidance can assist you in revising your plans (if needed) and ensuring your company remains secure and resilient.

Improves Decision Making:  Audits help you understand the errors made by your accountants, the fraud (if any) committed by anyone in your company, how the profitability could have been improved, which expenses could have been avoided, under-performing business segments, and so on. All these factors help you make strategic decisions about your company. 

What Is an Internal Audit?

An internal audit looks closely at how a business is running to find the effective ways to improve and create a reliable internal control environment. It assesses important business functions like daily operations, company policies, work processes, risks, ethics, and the quality of products or services. It also considers the current economic condition of the company. After the review, the auditors suggest important changes that could help the business work better and more efficiently.

The Importance of Internal Audits

Increase Employee Awareness and Responsibility: When the internal audits are in process, employees know their work is being checked. This makes them more careful, follow the rules, and do their jobs better.

Strengthen Internal Controls: Internal auditors check if company’s policies, rules and processes are being followed or no. If something is weak or missing, internal audits help to fix it, keeping the business safe from mistakes, money misuse, or fraud.

Drives Innovation Through Feedback: Sometimes, internal audits uncover outdated practices or inefficient tools. This can lead to upgrades, new systems, or innovative changes that boost business performance.

Key Differences Between External and Internal Audits

Which Audit Does Your Company Require? Many companies choose to do internal or external audits for different reasons. External audits are performed by professionals who are approved by the relevant government authority. Their reports are official and can help businesses to understand their financial health, risks, and overall performance from an outside party. Internal audits are executed either by in-house internal auditors or outsourced internal audit firms who are trained to make sure that all of company’s systems and processes are working properly. Both types of audits are helpful because they help get things better, make internal control systems stronger, and ensure better governance.

Many companies in Abu Dhabi choose to hire both services to maintain transparency, protect shareholder interests (as they are important for future investments), and increase operational efficiency. Whether you are an SME or a large enterprise, both audits add great value when they are completed with right partner firm.

Choosing the Right Audit Firm in UAE

When picking an audit firm, there are a few simple things to keep in consideration. Always prefer selecting a company that has good experience and a strong reputation in the UAE. It helps if they have worked with other businesses like yours. Also, make sure they understand your industry well, so they know what your business needs. Moreover, the audit firm should know the local rules, like VAT laws and international accounting standards applicable to companies in the UAE. Lastly and most importantly, check their online reputation by using Google Reviews, Goodfirms and Trustpilot. 

Conclusion

Both internal and external audits are critical to your company. External audits help you determine your finances are reliable and compliant with relevant local regulations, which establishes trust. On the other hand, internal audits ensure that your business has robust internal controls to detect and precent chances of errors and fraud.