What is the major difference between Internal Auditor And External Auditors?
Internal audit is a function within the company being audited. Such services are usually not externalized to a service provider (never heard of such a situation).
External audit is a specialized services provider contracted by the company being audited to provide assurance services.
Internal Audit is done by person who is part of Company , E.g Employee
While the External Audit is Indepedent Assignment , which is require by law . and External audit is done by Audit Firms , Which give independent view on Financial Statements
Internal audit is a function that, although operating independently from other departments and reports directly to the audit committee, resides within an organisation (i.e. they are company employees). It is responsible for performing audits (both financial and non-financial) within a wide range of areas within a business, as directed by the annual audit plan. Internal audit look at key risks facing the business and what is being done to manage those risks effectively, to help the organisation achieve its objectives.
External audit is an independent body which resides outside of the organisation which it is auditing. They are focused on the financial accounts or risks associated with finance and are appointed by the company shareholders. The main responsibility of external audit is to perform the annual statutory audit of the financial accounts, providing an opinion on whether they are a true and fair reflection of the company’s financial position. As part of this, external auditors often examine and evaluate internal controls put in place to manage the risks which could affect the financial accounts, to determine if they are working as intended.
This blog post differentiate between external and internal audit.
Statutory Audit / External Audit / Financial Audit - examines truth and fairness of financial statement and provides independent opinion.
Internal Audit / Operational Audit - monitors effectiveness of internal control and compliance.
Internal Audit vs. External Audit Check the table from the blog:
External audit is conducted by external auditor. Audit committee nominates auditors who presents themselves for appointment in the board meeting. Shareholders in annual meeting by using their power to vote appoint external auditor. An external auditor is appointed for a period of one financial year and they should present themselves to be reappointed for next period. Their role is to present independent opinion on truth and fairness of financial statements. In some cases at times of removal of an external auditor (because of demise, loosing professional recognition, removal by court), the board can appoint another external auditor and in some cases national governing body can appoint external auditor (if audit report is not presented in extended time period). However, the new auditor should present himself in the AGM (Annual General Meeting) for reappointment. An external auditor must be member of recognized professional accounting body...........
Internal auditor may or may not be a member of professional body need not present himself to AGM for reappointment, is appointed by board, reports to financial director or the board, liaise with external auditor and the board, concentrates in cost reduction, increasing efficiency and reducing performance gap, identifying non value adding activities .......................
External auditors are appointed by the board to review the financial statements and internal auditors can do whatever they are told to by the board or head of Internal Audit
External Auditors are required to audit the Financial Statements and to report on the true and fair view of those F.S. to the shareholders.
Internal Auditors are appointed by the Board to audit whatever the board require to be audited. The objectives of Internal Audit Function are as follows:
-Monitoring of Internal Control
-Examination of Financial and Operating Information
-Review of operating activities
-Review of Compliance with Law and Regulations
-Value for Money Audit
INTERNAL AUDIT IS ESTABLISHED AS PART OF SERVICE TO THE ORGANISATION AND DEALING WITH INTERNAL CONTROLS WHILE EXTERNAL AUDIT IS AN ASSURANCE ENGAGEMENT IN WHICH THE AUDITOR GIVES AN OPINION ON FINANCIAL STATEMENTS WHETHER THEY ARE FREE FROM MATERIAL MISSTATEMENTS