What distinguishes internal audit from external audit?

The distinction between internal and external audit fundamentally lies in their respective objectives and focus areas. Internal audit is primarily geared towards enhancing organizational governance, risk management processes, and internal controls. It conducts ongoing assessments to ensure that these systems are functioning effectively to support the organization’s strategic goals. This proactive approach allows internal auditors to provide insights and recommendations that help improve the organization's operations and compliance with internal policies.

In contrast, external audit serves a different purpose, centered around providing an independent opinion on the fairness and accuracy of an organization's financial statements. External auditors focus on compliance with applicable financial reporting standards and regulations, ensuring that stakeholders can trust the reported financial information.

Understanding this key difference clarifies why the correct statement emphasizes the focus of internal audit on organizational governance and internal controls, contrasting it with the compliance verification function of external audit. This distinction is crucial for anyone studying the roles of different auditing functions within organizations.