Audit Synergy: Unlocking the Power of Collaboration Between Internal and External Auditors

Introduction

The collaboration between Internal and External Audit isn’t just about compliance; it’s a strategic powerhouse that can transform risk management, efficiency, and decision-making. But are organisations harnessing this synergy to its fullest potential?

In this article, we explore the profound benefits of using the work of internal audit to strengthen external audit efforts, backed by research and professional standards.

The Case for Collaboration

The relationship between internal and external auditors has evolved from mere coexistence to an interdependent partnership. This collaboration offers tangible benefits that include the following:

• Improved Risk Identification and Management

Internal auditors possess deep operational insights, while external auditors bring an industry-wide perspective. Together, they can identify emerging risks and address them proactively. This joint effort strengthens organisational risk management processes, creating a more robust control environment.

• Enhanced Efficiency and Minimising Redundancy

By coordinating efforts, both functions avoid duplicating work, particularly in overlapping areas like financial reporting and compliance. This efficiency allows both teams to focus on high-risk areas unique to their mandates, optimising resource allocation.

• Improved Quality of Audit Findings and Recommendations

Internal audit’s operational expertise complements external audit’s financial and regulatory knowledge, leading to more actionable and aligned recommendations. This synergy ensures that findings are not only insightful but also aligned with organisational objectives.

Research Highlights: What Drives Internal Audit Effectiveness?

A study on internal audit effectiveness in the South African public sector by Erasmus and Coetzee, published in the Managerial Auditing Journal (2018), underscores the pivotal role internal audit plays in driving audit committee satisfaction and organisational confidence.

The data for the study was collected through a survey conducted from 2012 to 2014 which included a total of 187 respondents from various government sectors in South Africa.

Their findings were as follows:

• The Audit Committee's Perspective: The use of internal auditing by external auditors emerged as a critical driver of internal audit effectiveness. This reflects the committee’s focus on combined assurance.
• Senior Management’s Perspective: Satisfaction with the Internal Audit Function (IAF) and the value it adds were top drivers for management, aligning with their need for consulting and assurance support.
• Surprising Insight: The extent to which internal audit recommendations are implemented was not seen as a key measure of effectiveness by either group.
• Core Drivers: Senior management prioritised the competency of internal auditors, while audit committees valued the IAF’s standing and scope within the institution.

Leveraging ISA 610 for Collaboration

The International Standard on Auditing (ISA) 610 (Revised 2013) offers a structured framework for external auditors to leverage the work of internal audit.

The Framework includes the following:

• Risk Assessment: Internal audit insights can inform external auditors about areas of potential material misstatement.
• Substitution for Audit Evidence: Where appropriate, external auditors may use internal audit work to substitute direct evidence collection, reducing duplication.
• Direct Assistance: Internal auditors can perform specific procedures under the supervision of external auditors, streamlining the process.

However, this collaboration hinges on three critical factors:

1. Objectivity: Internal audit must operate independently to maintain credibility.
2. Competence: Internal auditors must demonstrate professional proficiency.
3. Systematic Approach: Internal audit processes must be documented, quality-controlled, and consistent.

In Conclusion

Collaboration between internal and external audit functions is not just a best practice, it’s a strategic imperative. By leveraging the complementary strengths of both functions, organisations can unlock unparalleled value in risk management, compliance, and operational excellence.

Sources:

• Erasmus, L., & Coetzee, P. (2018). Drivers of stakeholders’ view of internal audit effectiveness. Managerial Auditing Journal.
• International Standard on Auditing (ISA) 610 (Revised 2013).

Contact me at julius@ditsibiconsulting.com if you or your organisation may benefit from the following:

• Global Internal Audit Standards Masterclass – 2 days
• Personal Branding for Accounting and Finance Professionals Workshop – 5 hours
• Audit Manager Onboarding Programme – 4 days over 1 Month
• Trainee/Intern Efficacy development Course – 10 days over 3 months
• Strategy Session Facilitation
• Internal Audit Services (Co-Sourcing and Outsourcing)
• Internal Audit External Quality Assessments (EQA)
• Risk Management Services (Co-sourcing and Outsourcing)