Audit in simple words is the checking done in order to ensure whether the financial statements which are prepared by the company are correct or not. Auditing is compulsory for listed companies and it is done by the external auditor. However some companies also undertake internal audit which implies that employees within the company audit the financial statements of the company. Given below are some of the advantages and disadvantages of internal audit –
Advantages of Internal Audits
1. The biggest advantage of internal audit is that it will lead to discovery of errors and therefore when external audit is done those errors which were discovered during internal audit would have been rectified by then.
2. Since internal audit is done by the employees of the company there is no additional cost involved which again is a big advantage for a company which is doing internal audit.
3. As internal audit is a constant procedure where records are checked regularly it ensures that accounting staff of a company keep the records up to date.
Disadvantages of Internal Audits
1. Internal audits report is not accepted by either the shareholders or tax authorities, it is the external auditor report which is required to be submitted to these parties.
2. Since internal audit is done by the employees of the company chances are that it may be biased and therefore company cannot depend on such reports.
3. Since an internal audit is not done by the professional auditor chances of internal auditor not detecting the errors are high.