Difference Between Internal Audit vs External Audit
An audit is the process of independent examination and evaluation of the various books of accounts or financial statement or report of an organization or individual to make sure that they are accurate and in the manner as per applicable laws and regulation. The Financial report includes the balance sheet, income statement, cash flow statement etc. The purpose of an audit is to review that information presented in a financial report is actually matching with the financial position of an organization at a given date or not. Auditor reviews the financial report of the organization, as per the auditing standard set by the government body. In the tax, world audit is referred to the review of a taxpayer’s tax return for accuracy. Auditors predict the future of an organization by analyzing the past accounting period. An auditor does not judge what will happen in future they can just predict and provide suggestion to the organization. The main purpose of an audit is to form an opinion on the information in a financial report.
An Auditor should comply with codes of ethics and should conduct an audit in accordance with the international standard on auditing or laws and regulation set up by the government body. Some of the important auditing principles as listed below in diagram.
General Audit is divided into two types on the basis of object –
- Internal Audit
- External Audit
Let discuss these two types in details.
Internal Audit examines the effectiveness of organization internal controls and it is the accounting process. Internal auditors work for the organization as an internal employee. An objective of the internal auditor is to add value and improve organization operations and making sure that an organization is in the compliance with laws and regulation set by the government body. Generally, internal auditor collect all required information on how the organization is operating and use that information to show where it is doing well and where it can improve.
The purpose of internal audit is to evaluating organization performance on a periodic basis and identifying the loopholes to improve in the future which keeps company big or small. Planned internal audits are important for organizations in a wide range of industries.
Responsibility of Internal Auditor:
- Organization internal audit takes place on a daily, weekly, monthly, quarterly or annual basis. Some of the department do internal audit frequently than others.
- Monitoring, analyzing and finding the risk and control of the organization.
- To provide report finding and recommendation to the organization board, manager and other members.
- An internal auditor is a trusted consultant for an organization, and he is responsible to advise management on how to best manage the company’s risks and goals.
- An internal auditor is responsible to promote ethics and help to identify improper conduct.
- The most important job of the internal auditor is the ability to perform and impartial evaluation.
- Internal auditor responsibility to detect frauds and errors and provide control for that.
External audit is an independent evolution of the financial statements prepared by an organization. External audit is performed by an outside organization an independent person. An external audit provides both business and government with a valuable check of organization accounting. In external audit conflict of interest is less likely to happen as compared to internal audit. External auditor plays a critical role in validating organization finances.
Purpose of an external audit is to review the company accounts to show that they are accurate and complete. Sometimes the organization hires an external auditor for investigating for fraud.
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Responsibilities of External Auditor:
- The external auditor is responsible for providing an independent opinion on the organization financial statements.
- Its job is to understand the work environment, operations and internal controls of the organization.
- Its main objective is to serve shareholder of the organization by providing an opinion about the soundness of the preparation of the financial reports prepared by the organization.
- Certify the financial statement is the main job an external auditor.
- To determine the real organization market and financial situation that helps further in managerial decisions.
Below diagram shows the general audit procedure which auditor or organization follows during the audit.
Head To Head Comparison Between Internal Audit vs External Audit (Infographics)
Below is the top 7 difference between Internal Audit vs External Audit
Key Differences Between Internal Audit vs External Audit
Both Internal Audit vs External Audit are popular market choices; let us discuss some of the major Difference Between Internal Audit vs External Audit:
- Internal audit is a regular continuous activity which is performed by an internal audit department of an organization. External audit is a yearly activity to investigate the organization financial statement by a third party.
- Internal audit is not compulsory whereas External audit is compulsory.
- The scope of internal audit is decided by organization whereas external audit scope is decided by law.
- Internal auditors are employees of the organization whereas external auditors are always independent body to the organization.
- The objective of Internal audit and external audits are different, an objective of the internal audit is to educate management and employees about how they can improve business and efficiency whereas the objective of an external audit is to investigate and give credibility to financial reports that go to shareholders.
- An internal audit report is submitted to the internal management of organization whereas external audit is reported to shareholders, Government, Creditors, and Suppliers etc.
Internal Audit vs External Audit Comparison Table
Below is the 7 topmost comparison between Internal Audit vs External Audit
Conclusion – Internal Audit vs External Audit
So by and large, both Internal Audit vs External Audit are important for every organization, to assess the overall working. Internal and External audit plays a vital role in the effectiveness of the organization and which gives a true and fair view of the financial statement of the organization. The role of the external auditor is very important and critical as it’s certifying the integrity of the financial statement of the organization. External auditor checks work of internal auditor as a part of the process so that they can reassure the reliability of internal control for an organization.
Internal auditors are salaried employees of the organization and are considered to be independent whereas external auditors are an independent body which carries out the audit for the organization. In short, we can say that internal and external audit is not opposite to each other, instead, they are the supplement to each other.
This has a been a guide to the top difference between Internal Audit vs External Audit. Here we also discuss the Internal Audit vs External Audit key differences with infographics, and comparison table. You may also have a look at the following articles to learn more: