What is the difference between internal and external audit evidence?

The primary difference between internal and external audit evidence lies in the source and purpose of the evidence.

Internal Audit Evidence

Internal audit evidence is gathered by internal auditors who work for the organization being audited. They focus on evaluating internal controls, risks, and operational efficiency. The evidence is typically gathered through:

• Internal documents: Financial statements, policies, procedures, memos, and reports.
• Interviews: Discussions with employees at various levels to understand processes and controls.
• Observations: Observing processes and activities to assess their effectiveness.
• Re-performance: Reperforming tasks or calculations to verify accuracy.

External Audit Evidence

External audit evidence is gathered by independent external auditors, who are hired by the organization to provide an opinion on the fairness of the financial statements. They focus on ensuring compliance with accounting standards and detecting material misstatements. External auditors rely on:

• External documents: Bank statements, customer invoices, supplier confirmations, and regulatory filings.
• External confirmations: Verifying information directly with third parties, such as banks or customers.
• Analytical procedures: Examining relationships and trends in financial data.
• Expert opinions: Seeking professional advice from specialists on specific areas of expertise.

Key Differences

Practical Insights

• Internal audit evidence is often used as a starting point for external audits.
• External auditors may use internal audit reports to gain an understanding of the organization's internal controls.
• Both internal and external audit evidence must be reliable, relevant, and sufficient to support the audit conclusions.