How do external audits differ from internal audits in risk assessment?

External audits are primarily characterized by their independence from the organization being audited. They are conducted by independent parties who are not part of the organization, which helps to ensure that the audit findings are objective and unbiased. This independence is crucial in risk assessment because it allows stakeholders, such as investors or regulatory bodies, to rely on the audit as a true representation of the organization's risk profile and financial health. The external auditors assess financial statements and compliance with laws and regulations, thus providing an external perspective on the risks faced by the organization.

In contrast, internal audits are performed by internal staff members or teams who are part of the organization. Their main focus is usually on operational efficiencies, compliance with internal policies, and risk management processes. While internal audits can certainly be thorough, their scope and objectives differ from those of external audits, which tend to focus more on external financial compliance and oversight. Internal auditors may require thorough documentation to analyze processes within the organization, but this does not define the fundamental difference between the two types of audits as effectively as the independence of external audits does. Therefore, the distinction primarily centers around the independence and perspective of the auditor in relation to the organization being assessed.