1.1 Internal auditing is an independent appraisal function established within an entity to examine and evaluate its activities as a service to entity. Internal auditors are employees of the entities. Measures can be taken, however, to enhance the degree of independence in listed companies, for example, internal auditors report directly to the audit committee of board of directors.
1.2 External auditors perform financial statements audit. Internal auditors perform both compliance and operational audit for their companies.
1.3 Compliance audit is performed to determine whether a person or entity adheres to laws and regulations, such as taxation laws. Audit of income tax return is one of the examples of a compliance audit in which the CBR determines a person’s or entity’s adherence to tax regulations.
1.4 Operational audit deals with review of an organization’s activities in relation to specified objectives for the purpose of ascertaining performance, and exploring opportunities for improvement.