Difference Between Internal And External Auditor Pdf

difference between internal and external auditor pdf

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Journal of Management Accounting Research 1 October ; 28 3 : 83— While external auditors are concerned that this employee identity might negatively impact internal auditors' objectivity, the IIA argues this identity can actually be beneficial as employees may be more willing to share sensitive and audit-relevant information with the internal auditor than they would with the external auditor.

Audit refers to the process of independent examination or checking of the financial statements and records of an organization, so as to give an unbiased opinion on their accuracy and integrity. Audit has evolved to encompass the non-financial areas and operational matters in its ambit e. Internal audit refers to the critical examination of the financial statements and records of a business or organization, by its own employees. These employees are called internal auditors and appointed by the management of the organization.

Difference Between Internal Audit and External Audit

An audit is the process of independent examination and evaluation of the various books of accounts or financial statements or reports of an organization or individual to make sure that they are accurate and in the manner as per applicable laws and regulations. The Financial Report includes the balance sheet, income statement, cash flow statement, etc. The purpose of an audit is to review the information presented in a financial report is actually matching with the financial position of an organization at a given date or not.

The auditor reviews the financial report of the organization, as per the auditing standard set by the government body. Auditors predict the future of an organization by analyzing the past accounting period. An auditor does not judge what will happen in the future they can predict and provide suggestions 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 by 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 the diagram.

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 complies with laws and regulations set by the government body.

Generally, internal auditors 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 an internal audit is to evaluating organization performance periodically and identifying the loopholes to improve in the future, which keeps the company big or small.

Planned internal audits are important for organizations in a wide range of industries. The external audit is an independent evolution of the financial statements prepared by an organization. The 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 an external audit, a conflict of interest is less likely to happen as compared to an internal audit. External auditor plays a critical role in validating organization finances. The 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 fraud. The below diagram shows the general audit procedure which the auditor or organization follows during the audit.

Below is the top 7 difference between Internal Audit vs External Audit. So by and large, both Internal Audit vs External Audit is important for every organization, to assess the overall work. 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. 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 that 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 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:.

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Email ID. Contact No. It is an ongoing audit function performed within the organization by an internal auditing team. The internal auditor usually from inside the organization and its employee of the organization and appointed by Management. The external auditor is from outside the organization Third Party , and the shareholder of the organization appoints it.

A range of external audit is decided by a government body or as per rules and regulations.

Difference Between Internal Audit and External Audit

You can limit these audits to examinations of your financial health, or you can also order an extensive audit that takes a deep dive into all the risks and challenges facing your business and how you can prepare for those risks in the future. An internal audit is undertaken by members of your own staff who have a vested interest in the success of your company. An external audit, on the other hand, is an audit conducted by an independent agency or firm that has no connection to your business. Business owners can order an external audit for the same reason they conduct an internal audit. When you order an external audit, you are opening your business up to a critical and bias-free assessment of whether your company is in compliance with all applicable Internal Revenue Service rules and regulations. For example, an internal auditor who has been working within your company for years may not want to deliver bad news about tax non-compliance and may decide to delay fixing the problem, which could make things worse. Another of the advantages of having an audit from an outside firm is that your financial statements will be more credible if a company with no stake in your success or failure vets them.

Although appearing seemingly similar as the two functions share a common word, they are in reality quite different. Smaller entities may decide not to use an internal audit function given that it might not be cost effective for them to do so, however in order to understand the difference between the two functions we need to ask ourselves a few fundamental questions:. Internal auditors often perform a more advisory role by issuing recommendations aimed to support management in improving their systems and controls for the instances where they identify deficiencies in certain business areas. The purpose of an external audit is to provide an objective independent examination and to verify that the financial statements provide a true and fair reflection of where the company financially and have been appropriately prepared in accordance with accounting standards. This not only increases the value and credibility of the financials produced by management which in turns increases user confidence and reduces investor risk, but an independent review also provides greater transparency to the shareholders, highlighting areas of importance. Internal auditors may be employees of the firm, or alternatively the firm may wish to outsource its internal audit services.

We're using cookies on this site. Cookies store information that is necessary for this site to work well. More about cookies. Skip to main content. Published: 05 Sep By CareersinAudit. Working in the auditing industry leads to many different career opportunities. They also ensure that all policies implemented for risk management are operating effectively.


Internal auditors are hired by the company, while external auditors are appointed by a shareholder vote. Internal auditors will examine issues related to company business practices and risks, while external auditors examine the financial records and issue an opinion regarding the financial statements of the company.


Internal Audit vs. External Audit: What’s the Difference?

An audit is the process of independent examination and evaluation of the various books of accounts or financial statements or reports of an organization or individual to make sure that they are accurate and in the manner as per applicable laws and regulations. The Financial Report includes the balance sheet, income statement, cash flow statement, etc. The purpose of an audit is to review the information presented in a financial report is actually matching with the financial position of an organization at a given date or not. The auditor reviews the financial report of the organization, as per the auditing standard set by the government body. Auditors predict the future of an organization by analyzing the past accounting period.

Internal vs. External Auditors, What’s the Difference?

Audit alludes to a process of independent checking of financial records of an organization, so as to give an opinion on the financial statement. It can be grouped into two categories, namely, Internal Audit and External Audit. Internal Audit is not compulsory by nature but can be conducted to review the operational activities of the organization. On the contrary, External Audit which is obligatory for every separate legal entity, where a third party is brought to the organization to perform the process of Audit and give its opinion on the Financial Statements of the company. Here the working scope is determined by the respective statute.

There are multiple differences between the internal audit and external audit functions, which are as follows:. Internal auditors are company employees , while external auditors work for an outside audit firm. Internal auditors are hired by the company, while external auditors are appointed by a shareholder vote. Internal auditors are responsible to management, while external auditors are responsible to the shareholders.

Internal Audit vs. External Audit

While the internal and external audit functions are complementary and may need to work closely together, their purposes and areas of focus differ. The Institute of Internal Auditors IIA emphasizes that the two functions do not compete or conflict; rather, they both contribute to effective governance. Knowing how external auditing works can help internal auditors better prepare for an audit and make sure their organizational reporting and other documentation meets requirements. The internal audit function should ideally be improvement-oriented—How can our governance and risk management processes be more effective in managing risk and supporting organizational objectives? External audit has no responsibility to evaluate GRC activities or suggest improvements, other than reporting internal control problems or identifying corrective actions needed to address noncompliance issues that may come up in their audit work.

Internal Audit is one of the sector of an organization that ensures providing independent review and unbiased process of system and also helps to add value and improve organizational value, whereas External Audit is a verification of the financial statements of the company conducted by independent or external auditors so as to certify them in order to ensure the credibility of such financials for investors, lenders and public. An audit can be defined as objective evaluation and examination of the financial statements of a company or an organization to ensure that the records represent a fair and accurate view of the transactions they claim. The audit can be conducted either internally by the employees of the firm or the organization or externally by a third party, i.

Internal Audit vs External Audit

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