What is different about being an internal auditor versus an external auditor?
Internal audit is one of the sectors of an organization that ensures independent review and unbiased process of the system and helps to add value and improve organizational value. In contrast, External Audit is a verification of the company’s financial statements conducted by independent or external auditors to certify them to ensure the credibility of such financials for investors, lenders, and the public. Show
An audit can be defined as an objective evaluation and examination of the financial statements of a companyFinancial Statements Of A CompanyFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more 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 firm’s employees or the organization or externally by a third party, i.e., outside the firm. Stating differently, audit alludes to a process of checking, which is independent of the firm’s financial records or an organization, to opine on the financial statements. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked An audit can be grouped into two categories, namely, 1) Internal Audit and 2) External Audit. By nature,
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The auditing process of the two types of audit is almost similar, which is why people often get confused between these two. In this article, we look at the differences between Internal and External Audit in detail – Table of contents
Internal Audit vs. External Audit InfographicsYou are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked Key DifferencesThe key differences are as follows –
Internal vs. External Audit Comparative TableBasisInternal AuditExternal Audit DefinitionInternal audits will evaluate the firm’s internal controls, which include its accounting process and corporate governance. They will ensure compliance with the laws and regulations. They will also make sure accurate and timely financial reportingTimely Financial ReportingFinancial reporting is a systematic process of recording and representing a company’s financial data. The reports reflect a firm’s financial health and performance in a given period. Management, investors, shareholders, financiers, government, and regulatory agencies rely on financial reports for decision-making.read more and data collection. It aids in maintaining the operational efficiency by identifying the issues and correcting the lapses before an external audit discovers them.External audit purpose is to determine whether the firm or an organization is providing a fair, complete, and accurate representation of its financial position by examining all the information that is available such as bookkeepingBookkeepingBookkeeping is the day-to-day documentation of a company’s financial transactions. These transactions include purchases, sales, receipts, and payments.read more records, bank balances, and financial transactions.ObjectiveThe key objective is to review the routine process and the activities and further provide suggestions wherever there is scope for improvement.Here the vital objective is to analyze and verify the financial statements of the firm or the company.Who conducts itInternal employees of the company (internal audit department) conduct it.A third party will conduct it.ScopeThe management of the company or the entity decides its scope.The relevant authority or the statute will decide the Scope here.Reporting responsibilitiesInternal audit must be independent of the management of the company and to report functionally (directly) to the board, which is usually through the audit committeeAudit CommitteeA company's audit committee is a group of non-executive directors who are in charge of ensuring the integrity of internal controls, auditing, and financial reporting procedures. It works under the supervision of the Board of Directors and strives to sustain the corporate governance system.read more.External auditors are responsible to the shareholders of the company. In the public sector, they are ultimately accountable for a legislative body such as the Parliament. They are nowhere responsible for the management of the company or the audited body. The management does not direct the extent and scope of their work.Users of the Audit ReportsManagement is the one that mainly uses the audit reportAudit ReportAn audit report is a document prepared by an external auditor at the end of the auditing process that consolidates all of his findings and observations about a company's financial statements.read more to identify loopholes before that gets captured and reported in the external audit.The members, shareholders, the public at large, etc. are some of the stakeholders that use external audit reports.ConclusionExternal audits and internal audits are not opposed to each other. Instead, they complement one another. The external auditor may use the work conducted in the internal audit if he thinks it fits. Still, it will not reduce the scope and the responsibility of the external auditor. On the contrary, an Internal Audit acts as a check on the process and business activities and aids by advising on different matters to gain operational efficiency. On the contrary, an external audit is independent in which the third party is brought to the firm to carry out the procedure. It checks the accuracy, completeness, and validity of the annual account of the firm. Recommended ArticlesThis article is a guide to Internal Audit vs. External Audit. Here we discuss the top difference between internal and external audits and infographics and a comparison table. You may also have a look at the following articles – What is the difference between an internal auditor and an external auditor quizlet?External auditors represent the interests of third party stakeholders, while internal auditors serve as an independent appraisal function within the organization. Internal auditors often perform tasks, which can reduce external audit fees and help to achieve audit efficiency and reduce audit fees.
What are the differences between the independence of external and internal auditors?The main difference between internal and independent audits is that internal audits are conducted by employees of the entity being audited; and, independent audits are conducted by individuals that are not in the employ of the entity being audited.
Which is better external auditor or internal auditor?While external audit can sometimes be seen as a “check-the-box” activity required by regulators, bankers or shareholders, internal audit provides a more proactive and consultative approach to evaluating an organization and providing a fresh perspective on operations and controls.
What are the advantages of external audit as compared to internal audit?An external audit improves internal systems and controls
This will enable them to identify deficiencies in the accounting systems or controls for which recommendations can be made, making your business more efficient and less prone to fraud or error.
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