Description of Internal Audit Report
Discuss about the Distinction between internal and external audit report in Pantech Group Holdings Berhad.
Audit reporting is the legal presentation of disclaimer findings issued to the users after an independent audit examination of the financial books and control systems is done. This reporting is what is presented in the audit report that is classified as either internal or external depending with factors outline here below. It should also be known that for illustration purposes I have used one of the listed companies in Malaysian i.e. Pantech Group Holdings Berhad 2017 reports to explain the differences between internal and external reports.
Internal audit is the cross-examination of firms’ practices and operations that see into it that company’s risks (Lin, Prizing, Vargas, & Bradman, 2011 p 300) i.e. inherent, detective and controlled are mitigated and controlled thus enabling achievement of strategic objectives and financial goals. Internal audit report similarly entails business practices examination of procedures and controls of the firm’s internal control systems (So, & Martinov-Bennie, 2011 p 620) .The internal Audit process is guided by Malaysian Internal Audit Standards.
The core difference that dictates whether an audit report is internal or external is the users and conductors of the audit and reports respectively (Erkens, & Bonner, 2012 p 132).On the face of it internal means operations within the organization, therefore, it is presumed that internal report is used internally by internal users who are the directors and management at large (Carcello, Eulerich, Masli, & Wood, 2018 p 27). Internal audit reports are likewise prepared by persons from the company who act on behalf of the company as agreed hence do so for the interest of the firm.
Internal Audit report is discretional or rather optional because a firm may opt to do or not to do an internal audit thus not a mandatory aspect unlike external audit that is a compulsory legal requirement to all firms in Malaysia and especially by the users of the information i.e. investors, shareholders and general public as depicted in the Pantech Group Ltd whereby the shareholders and the public are informed of what was reported in the financial statements on pages 34, 35 & 36.
This has ideally made internal audit report appear as though it is an in-house business affair since its sole purpose is what suits the company progress hence creating some sense of flexibility and amendments an aspect that show that has no tight operational legal framework like what happens to the external audit that no one discretion and quiz of mind or chance is applied instead the prevailing audit legal framework and standards is what is applied (Obaidat, 2007 p 187).
Description of External Audit Report
The internal audit report is prepared by internal auditors who are employees of a company hence are entitled to a salary remuneration and therefore obliged to safeguard the interest of the company at all cost whether it is reasonable or not as referenced by ( Singh,& Newby,2010 p 320). More illustration is seen on page 45 of the Pantech Ltd Group reports. This is further illustrated in page 17 of the Pantech Ltd Group Company 2017 report that informs us that the Audit Committee who conducted and prepared the 2017 Pantech internal audit report was appointed by the board of directors who were exclusively independent non-executive directors (Erkens, & Bonner, 2012 p 130).
External audit, on the other hand, involves examination of annual financial accounts or books of accounts and statements so as to find out whether they present true and fair position pursuant to set Audit regulations and framework in place. The findings were done in writing (hard copy) or in soft copy explaining whether the financial statements present true and fair view of the firm, is ideally what is referred to as external audit-report.
External audit report whose users are external parties who do not directly relate to the firm operations as referenced in (Marcu,2018 p 193).These external users are mostly the shareholders, customers, investors, creditors, financial institutions and of course Malaysian Government. Similarly, it is prudent to understand that external audit report preparers and examiners are externally consulted and do work in the best interest of the external parties who indeed are the user’s external users themselves.
External Audit report is always available to the public with all its contents prepared as per regulations and standards so as to safeguard the interest of all the users of the information, hence are always reported and published in websites and newspapers hence can be accessed in whatsoever means and form a user would wish to access it (Petra?cu, & Tieanu, 2014 p 490). For instance, this external audit report for Pantech Group Ltd has been accessed by downloading the annual report from the website of the listed companies in Malaysia hence the report was and is publicly available.
External audit report on the other hand when it comes to the format of preparation is unique since it is structured in the format that is guided by the Audit Standards with the sole aspect of ensuring that presentation of the true and fair view of the firm is reported (Marcu, 2018 p 190).It is likewise structured to ensure there is legal compliance of all audit, accounting and business regulations set in place. It ideally focuses on the materiality of factual aspects that directly affects the books of accounts hence do not focus on immaterial factors and if need be they do separate reporting in the management letters. This is illustrated from pages 22, 36 of Pantech Group Ltd 2017 Annual Report all the way to page 142 of the same 2017 report.
Analysis on the Differences Between Internal and External Audit Report
These two reports i.e. both internal and external audit reports are mostly presented on the same platform as Company Annual Audit Report. This report starts by explaining the internal audit findings and control, as well as management, advice and finalizes with the external audit report done by the audit committee. This is actually what is presented in the 2017 Pantech Group Holdings Berhad Annual Report whereby in pages 17 the audit committee (Salleh, & Stewart, 2012 p 1370) is outlined thereafter in page 18 of the same firm summary report for both internal and external reports are presented. Conclusive analysis of internal audit report for Pantech Group Holdings Ltd is further seen on pages 18 and 19 of the Annual Report 2017 while for external audit is presented in pages 20 onwards.
Internal Audit report is a more of a tailored report that tend to critically illustrate and explain how risks and firms goals are managed and helped to be achieved respectively (Knechel, & Salterio, 2016 p 10) hence concentrate more on directing and advising the management (Carcello, Eulerich, Masli, & Wood,2018) on what to do so as to curb risks and facilitate objective achievement by ensuring that internal control systems are adhered and implemented fully as seen from pages 18, 19, 20 and 21. Internal audit report ideally entails all matters relating to business operation whether they are material or immaterial the reporting is done base on all factors business related and especially on risk and internal controls (Bragg, 2012 p 115).This report has no special approach of reporting and preparation since it is internally used and has no specific guidelines outlined for follow-up.
Internal Audit reporting is mostly reported, prepared and presented shallowly in the annual reporting mainly because it involves in-house business matters but external audit report is mostly done in detail form explaining each and every material aspect prescribed by the regulation as it is being illustrated in Pantech Group Ltd 2017 Annual Report whereby internal audit report information are only discussed in pages 18,19 and 20 while the external audit report covers almost three quarters of the annual report in detail forms and especially from pages 48 of the Pantech Group Ltd 2017 Annual Report so as to equip the users of the information with all the relevant material information they might need for decision makers.
Most internal audit reports are not formally published and shared to the public since it is only vital to the internal users hence only presented in the annual report only to the Audit Committee who shares the information to the Board Management as it is revealed in Pantech Group Ltd 2017 Annual Report Page 20 where we are just informed that the report was just reported to the management board. Internal reports are therefore not easily published for public domain hence its availability is only limited to the internal users who are the management per se (Mayne, 2017 p 100).
The fact that internal audit report is meant to control and advice on business operation and well-being, subsequent follow-ups and implementation of matters raised and recommended is made so as to ensure that all query raised in question is fully addressed as referenced in the book written by (Zhang, 2018 p 270). Likewise, page 20 of the annual report of Pantech Ltd Group Company that it is reported to the board for their action and attention illustrates the follow-ups done on the internal audit report. External audit report does not need follow-ups after reporting because it is mostly done not to advise but to give the true and fair view or picture of the firm hence just give the report and wait for the next annual external audit and do the same to the extent of even reporting similar material items that recurred in the previous audit.
External audit report, on the other hand, is prepared and reported by certified public accountants and auditors who are appointed by the choice vote made by the shareholders hence are responsible to the shareholders or rather investors. They are entitled to packages agreed upon and those which are in conformity with agreed set payment standards known as audit fee (Chan, Liu, & Sun, 2013 p 1130) for the period they conduct the audit. The independent external audit firm whose auditors prepared the external audit 2017 report for Pantech Ltd Company as depicted in page 4 is known as Messrs.’ SJ Grant Thornton a member of the firm of Grant Thornton International Ltd.
Conclusion
Ideally, though the two reports are seen to share a common verb and noun “audit” they actually differ as explained above. Most large and medium-sized organization in Malaysia are seen to exercise the two functions i.e. internal audit and external audit so as to have their books, internal control system processes and financial statements are regularly cross-checked at time intervals of within the year and at year-end.
References
Bragg, S. M. (2012). Internal Audit Function. Controllership: The Work of the Managerial Accountant, Eighth Edition, 113-121.
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Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Taylor & Francis.
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Marcu, N. (2018). Principles and Ethical Values in Public External Audit Activity. In Current Issues in Corporate Social Responsibility (pp. 185-194). Springer, Cham.
Mayne, J. (2017). Evaluation for accountability: myth or reality?. In Making Accountability Work (pp. 81-102). Routledge.
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Petra?cu, D., & Tieanu, A. (2014). The role of internal audit in fraud prevention and detection.
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Salleh, Z., & Stewart, J. (2012). The role of the audit committee in resolving auditor-client disagreements: a Malaysian study. Accounting, Auditing & Accountability Journal, 25(8),1340-1372.
Singh, H., & Newby, R. (2010). Internal audit and audit fees: further evidence. Managerial Auditing Journal, 25(4), 309-327. Soh, D. S., & Martinov-Bennie, N. (2011). The internal audit function: Perceptions of internal
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Zhang, J. H. (2018). Accounting Comparability, Audit Effort, and Audit Outcomes.
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