Why information sharing between Internal and External audit is vital

Despite sharing similar functions , internal and external auditors have different objectives and reporting responsibilities. That is perhaps why the two usually do not share information freely with each other.

Internal auditors usually assess issues related to business practices and processes while their external counterparts issue opinions on financial statements and records. The fundamental purpose of the two functions is also a crucial demarcation. Internal audits act as a tool for the organisation’s management, while external audits cater to stakeholders such as lenders, investors, and creditors.

Industry voices agree that a  more collaborative relationship between internal and external audit is necessary for a profession that is striving to improve both its quality and its standing in the public eye.

By spending more time inside the organization and being closer to the business, internal auditors have better knowledge and understanding of both. They also have a broader remit. A proportion of internal audit work may often focus on governance and strategic matters. Therefore, internal auditors could be a rich source of knowledge that the external audit team could tap into and build upon rather than duplicate the time and effort.

Such teamwork is very important for audit committees and shareholders as input from both sides facilitates a more thorough oversight of the organisation’s financial reporting process. It provides the readers of their reports with greater understanding of the organization’s rigour around the management of risk and the controls in place to mitigate those risks.

The two functions must have purposeful, high-quality liaison. They must develop strong mutual understanding  through meaningful dialogue at key moments in the external audit planning and execution stages. Highlighting concerns is a skill common to both, so information sharing is in their mutual interest.

That said, the relationship cannot function unconditionally. The independence and objectivity of both sides remains critical. One side being overly reliant on the other places the financial stability of the organization at risk. It must be a collaborative relationship of equals – a sharing of information without compromising each other’s independence and objectivity.