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ACCA Applied Knowledge · Business and Technology · Accounting and finance functions within business organisations

Which of the following is a key difference between internal audit and external audit?

Internal audit's scope is set by management or the audit committee and can cover any area, such as controls and efficiency. External audit's scope is determined mainly by law and auditing standards, focusing on an opinion on the financial statements for shareholders.

  1. AInternal audit is a legal requirement for all companies, whereas external audit is optional
  2. BInternal audit scope is determined by management or the audit committee, whereas external audit scope is set largely by law and auditing standardsCorrect
  3. CInternal auditors report to the shareholders, whereas external auditors report to management
  4. DInternal audit focuses solely on the financial statements, whereas external audit focuses on operations

Explanation

Internal audit scope is decided by the organisation (management or the audit committee) and can cover operations, risk and controls. External audit scope is driven by statute and auditing standards, centred on the financial statements. The other options reverse the usual reporting lines and legal requirements.

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