Explain the processes of internal and external audits.

Question

What will be an ideal response?

Answer 1

Management audits evaluate the effectiveness and efficiency of the organization's various systems, from social responsibility programs to accounting systems. Managers conduct external and internal audits: external audits of other companies and internal audits of their own companies. Some of the same tools and approaches are used for both types. An external audit occurs when one organization evaluates another organization. Commonly, an external body, such as a CPA firm, conducts financial and accounting audits. But any company can conduct external audits of competitors or other companies for its own strategic purposes. This type of analysis investigates other organizations for possible merger or acquisition, determines the soundness of a company being considered as a supplier, or discovers the strengths and weaknesses of a competitor to maintain or better exploit the competitive advantages of the investigating organization. Typically, firms use publicly available data for these evaluations. External audits provide essential feedback control when they identify evidence of legal and ethical lapses that could harm the organization and its reputation. They also provide preliminary control because they can prevent problems from occurring in the future. When a company seeking to buy other businesses gathers accurate information about candidates, it is more likely to acquire the best companies and avoid unsound acquisitions. An employer might assign a group to conduct an internal audit to assess what the company has done for itself, and what it has done for its customers or other recipients of its goods or services. The audit can assess a variety of things including financial stability, production efficiency, sales effectiveness, human resources development, earnings growth, energy use, public relations, civic responsibility, and other effectiveness criteria. The audit reviews the company's past, present, and future, including any risks the organization should be prepared to face. Stock prices of companies with highly rated audit committees tend to rise faster than shares of companies with lower-rated internal auditors. Strong audit committees do a better job of finding and eliminating undesirable practices. To perform a management audit, auditors compile a list of desired qualifications and weight each qualification. Management audits uncover common undesirable practices such as unnecessary work, work duplication, poor inventory control, uneconomical use of equipment and machines, procedures that are costlier than necessary, and wasted resources.