Internal Audit: Internal audit is not compulsory by nature but can be conducted to review the operational activities of the organization. In internal audit, auditors will examine all the issues related to company business practices and risks. This refers to an ongoing audit function performed within an organization by a separate internal auditing department. Internal audits are conducted throughout the year for objective assurance and consulting activity designed to add value and improve an organization’s operations.
External Audit: In external audit, auditors examine the financial records and issue an opinion regarding the financial statements of the company. It is an audit function performed by the third party, which is not a part of the organization. External auditors can only conduct a single annual audit in accordance with specific laws or rules, of the financial statements of a company, government entity, or organization, and is independent of the entity being audited.
Here we are describing the major differences bet internal and external audit-
1. Internal audit is not regulated activity, while external audit is a regulated activity.
2. Internal auditors can be employed by business or outsourced, while external auditors works for an outside audit firm or are registered Auditors.
3. Internal auditors are hired by the company, while external auditors are hired by the shareholders of the company.
4. The internal audit agenda is set internally in terms of business’s risk and objectives, while external audit will set its own programme of work, based on its assessment of the risks of the accounts being materially misstated.
5. Internal auditors report internally (company management), while external auditors are responsible towards shareholders of the company.
6. Internal auditors provide a tailored report about how the risk and objectives are being managed, while external auditors provide the report in a format required by auditing standards and focus on whether the accounts give a true and fair value and comply with legal requirements.
7. Internal auditors report internally. They Report to the audit committee or the board, so there is high level oversight, while external auditors report primarily to the shareholders or trustees or an unincorporated charity.
8. Internal auditors will only examine issue related to company business practices and risk, while external auditors examine the financial records and issue an opinion regarding the financial statement of the company.
9. Internal audits can be conducted throughout the year, while external auditors conduct an annual audit. If a company is publicly-held, external auditors will provide review services three times per year.
10. Internal auditors can issue their findings in any type of report format, while external auditors must use specific formats for their audit opinion and management letters.
In short, we can say Internal Audit and External Audit shares one word in their name, but are very different in functions. Internal audit works as a check on the activities business and assists by advising on various matters to gain operational efficiency. On the other hand, external audit is a process in which a third party is brought to the organization to carry out the procedure. It checks the accuracy and validity of the annual accounts of the organization.
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