Internal Audit & External Audit.

Internal and External Audit.

Internal audit and external audit are two different processes that organizations use to assess their financial, executional and operational activities during construction and manufacturing process, ensure compliance with regulations, and maintain accountability. The differences between internal audit and external audit as per

• Purpose
• Reporting Line
• Scope
• Frequency
• Reporting Output
• Regulation and Standard

Purpose:

The primary purpose of internal audit is to provide independent and objective assurance to an organization's management and board of directors regarding the effectiveness of internal controls, risk management, and governance processes. Internal auditors focus on improving organizational efficiency and effectiveness. Whereas External audits are primarily conducted for the benefit of external stakeholders, such as shareholders, investors, regulators, and creditors. Their main purpose is to express an opinion on the fairness and accuracy of the financial statements prepared by the organization.

Reporting Line:

Internal auditors are typically employees of the organization and report to the organization's management or board of directors. They work as an internal function, providing recommendations and insights to improve operations. Whereas External auditors are independent third-party professionals or firms hired by the organization but reporting to external stakeholders, such as shareholders or regulatory authorities. They are required to maintain independence from the organization they audit.

Scope:

Internal audit covers a broader range of activities beyond financial controls. It may include operational audits, compliance audits, and assessments of various business processes and disciplines (Design, Planning, Procurement, Engineering, HR etc). The scope is determined by the organization's needs and objectives. Whereas External audit primarily focuses on the examination of financial statements and related disclosures to ensure they are free from material misstatements and follow generally accepted auditing principles or International standards.

Frequency:

Internal audits can be conducted on a regular basis, often throughout the year, depending on the organization's risk profile and internal control environment. Whereas External audits are typically conducted annually, although interim reviews may also occur. The frequency is often mandated by regulatory and project requirements.

Reporting Output:

The output of internal audits includes internal audit reports and recommendations for improving internal processes, controls, and risk management. These reports are intended for internal use by management and the board. Whereas the primary output of an external audit is the issuance of an audit opinion or report on the fairness of financial statements. This report is made available to external stakeholders, including investors, creditors, Clients, EPM, PMT and regulatory authorities.

Regulation and Standards:

Internal audit standards are often set by professional organizations like the Institute of Internal Auditors (IIA) and can vary from one organization to another. As Saudi Aramco & Neom is following Schedule Q, Project Quality Plan, ISO 9001-2015 as guidelines. They focus on best practices for internal control and risk management. Whereas External auditors are typically required to follow established auditing standards, to maintain consistency and credibility.

In summary, internal audit is an internal function focused on improving an organization's internal controls and operations, while external audit is conducted by independent auditors to provide an opinion on the fairness for external stakeholders. Both types of audits play essential roles in ensuring transparency, accountability, and good governance within organizations.