ACCA Audit and Assurance (F8) Practice Exam

What differentiates external audit from internal audit?

1. Internal audit is mandatory

2. External audit focuses on control procedures

3. Internal audit aims to add value and improve operations

4. External audit is conducted by company employees

The correct answer is: Internal audit aims to add value and improve operations

The primary distinction between external and internal audits lies in their objectives and outcomes. An internal audit aims to add value to an organization and improve its operations by evaluating and enhancing the effectiveness of risk management, control, and governance processes. Internal auditors assess not only compliance with policies and regulations but also look for opportunities to optimize processes and increase operational efficiency. This focus on ongoing improvement and value generation is a hallmark of internal audits. In contrast, an external audit is primarily concerned with the accuracy and fairness of financial statements, usually resulting in an independent auditor's report that provides assurance to stakeholders regarding the financial position of the entity. External auditors operate independently of the organization, which helps to ensure objectivity and reliability in the audit findings. While some of the other options touch on aspects related to the types of audits, they do not encapsulate the core differentiator of adding value and process improvement that internal audits strive to achieve. For instance, suggesting that internal audit is mandatory does not apply universally as it varies by jurisdiction and organizational structure. Similarly, external audits do not primarily focus on control procedures, but rather on the financial statements and compliance with accounting standards. Lastly, external audits are conducted by independent third parties, not by company employees, emphasizing the independence and impartiality in