Do Internal / External audit standards prohibit auditors from ownership in the entities they audit?

external auditors are prohibited for buying share holding in subject company,

EXTERNAL AUDIT

IFAC's code of ethics for external auditors has comprehensive explanation in such a scenario;

If a member of the audit team, a member of that individual’s immediate family, or a firm has a direct or material indirect financial interest in an entity that has a controlling interest in the audit client, and the client is material to the entity, the self-interest threat created would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, none of the following shall have such a financial interest: a member of the audit team; a member of that individual’s immediate family; and the firm.  

 

INTERNAL AUDIT

Internal auditor can have ownership in an entity but there are certian regulations the spirit of which prohibtis internal audits from having major shareholding in an entity. Examples are asfollows:

Independence  The freedom from conditions that threaten the ability of the internal audit activity to carry out internal audit responsibilities in an unbiased manner.

ObjectivityAn unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they believe in their work product and that no  quality compromises are made. Objectivity requires that internal auditors do not subordinate their judgment on audit matters to others. 

Conflict of InterestAny relationship that is, or appears to be, not in the best interest of the organization. A conflict of interest would prejudice an individual's ability to perform his or her duties and responsibilities objectively.

For Internal Auditors no restriction.

For External: Open Market Operations not restricted.

(An  External Auditor is appointed for a specific period-He need not liquidate the holdings in the firm, it is not a disqualification--He can also make purchases the equity from open market in his Individual capacity--for substantial stake need reference)

I agree with Mr. Khalid Noor.

Unlike external auditing standards, Internal auditing standards do not prohibit auditors from ownership in the entities they audit.

Internal auditing standard do not prohibit auditors from ownership in the entities they audit. External audit standard can prohibit auditing by use of Estimation and judgement by the management of the entity in numerous values reported in the financial system.

The stake in the organization will impair the independence and objectivity of the auditor. Ethical standards also prohibit the auditors from having considerable shareholding in any organization they are auditing. The type and quantum of information that auditors gain during the audit put them in a favorable position as compared to other shareholders or general public i.e. they can easily trade shares at "Sensitive Times".

I think we need to revise the question. Auditing standards do not prohibit auditors from ownership in any entities BUT auditors are not allowed to audit any entities where conflicts of interests are assumed between auditors or his/her relatives/friends and other shareholders /stakeholders of the company. In this context, local regulations such as company act, listing requirments, code of corporate governance...etc  usually has some rules related to such situation. 

Thank you forthis Answer:

I agree with youcompletelyVENKITARAMAN