What Is an External Audit?

External audit refers to an audit conducted by an audit agency or a social audit agency to review the rationality, legality, accuracy, authenticity and effectiveness of the economic and business activities of the audited entity, and to make an objective review of the audit results Fair evaluation. It includes audits performed by the national auditing agency on the audited unit and the auditors or certified public accountants in the social audit organization, which are commissioned to audit the audited unit, that is, national audit and social audit. ^[1]

External Audit

External audit (outside audit; external audit) refers to those independent of government agencies and enterprises

National audit refers to the audit performed by the national auditing agency. The main body of national audit is

The advantage of external audit is that there is no administrative dependency between the auditors and the management authority. They do not need to look at the eyes of the enterprise. They only need to be responsible to the state, society, and law, so it is possible to guarantee the audit.

Link between internal audit and external audit:

The overall goals of internal audit and external audit are the same, both of which are the organic components of the audit supervision system. Internal audit is preventive, regular and targeted. It is the basis of external audit and can assist and supplement external audit. External audit can also support and guide internal audit. Due to the different status of internal audit institutions and external audit institutions, they have great differences in independence, compulsoryness, authority and notarization.

Difference between internal audit and external audit:

1. In terms of audit nature, internal audit belongs to the internal audit supervision performed by internal audit institutions or full-time auditors, and is only responsible for the unit; external audit is a visa activity provided by an independent external agency as a third party, and has power over the state. The department or the public is responsible.

2. In terms of audit independence, internal audit is restricted by the organization in terms of organization, work, and economy, and its independence is limited; external audit has no relationship with the audited unit in terms of economy, organization, and work, and has a strong Independence.

3. In terms of auditing methods, internal auditing is conducted in accordance with the organization's arrangements, and it has certain arbitrariness; most external auditing is carried out by commission.

4. In terms of scope of work, the scope of internal audit covers all aspects of unit management processes, including risk management, control, and governance processes; external audit focuses on the company's financial processes and internal control related to financial information.

5. In terms of audit methods, internal audit methods are diverse. Various methods should be adopted in accordance with the specific circumstances of the organization, which may also include some procedures of external audit. The external audit method focuses on report audit procedures.

6. In terms of service objects, the service object of internal audit is the person in charge of the unit; the service object of external audit is the national authority or relevant stakeholders.

7. In the role of the audit report, the internal audit report can only be used as a reference for the unit's operation and management. It does not serve as an assurance to the outside world and cannot be disclosed to the outside world. The audit results of the national audit are in addition to commercial secrets or other inappropriate contents. It must be publicly disclosed; the social audit report must be open to the outside world, responsible to investors, creditors, and the public, and it has the role of social attestation.

8. In terms of audit objects, the national audit mainly focuses on the financial revenues and expenditures and capital operation of governments at all levels, institutions and large backbone enterprises; the social audit objects include all profitable and non-profit entities; the internal audit objects are Financial revenue and expenditure, financial revenue and expenditure, and economic activities of the unit and its subsidiaries.

9. In terms of audit authority, the national audit represents national interests and has both the right to review and deal with the violation of laws and disciplines of the audited unit; social audit can only review and verify the relevant economic activities of the audited unit designated by the client. ; Internal audit has the right to review and handle, but its inward service determines that its compulsoryness and independence are weaker than national audits, and its audit conclusions are not as high as the social authority of social audits.

10. In terms of audit supervision, national audit is administrative supervision and mandatory; social audit is social supervision. National laws can only specify which companies must be audited and verified by social audit organizations, and between audited enterprises and social audit organizations It is a two-way voluntary choice relationship; internal audit is the unit's self-monitoring.

11. On the basis of the auditing standards, the national auditing standards are based on the national auditing standards formulated by the National Audit Office; the social auditing standards are based on the independent auditing standards formulated by the Chinese Institute of Certified Public Accountants; Internal auditing standards developed by the Institute of Auditors.