Internal and external auditing are two types of audits that serve different purposes and have
Internal audit refers to an independent, objective evaluation of an organization’s operations and
systems to ensure that they are working effectively and efficiently and that they are in compliance
with applicable laws, regulations, and policies. The purpose of internal audit is to provide assurance
to the organization’s stakeholders, including its management, board of directors, and shareholders,
that the organization’s risks are being effectively managed and that its operations are functioning as
Internal audit activities typically involve reviewing and evaluating the organization’s internal
controls, financial reporting processes, risk management practices, and other key operational areas.
The results of internal audit activities are usually reported to the organization’s senior management
and board of directors, and may include recommendations for improving the effectiveness and
efficiency of the organization’s operations.
Internal audit can play an important role in helping organizations to identify and mitigate risks,
improve their operations, and ensure that they are in compliance with relevant laws and regulations.
An external audit is an independent examination of an organization’s financial records and
operations performed by an external auditor. The purpose of an external audit is to provide an
objective and impartial assessment of an organization’s financial statements, compliance with
regulations and laws, and overall financial health.
The external auditor will review the company’s financial records, systems, and processes, and test
the accuracy and reliability of the data. The auditor will also assess the effectiveness of internal
controls and make recommendations for improvements if necessary. The external auditor will then
issue an opinion on the fairness and accuracy of the company’s financial statements, which can be
used by stakeholders such as investors, creditors, and regulatory agencies.
External audits are typically performed annually and are required by law for publicly traded
companies. They are also commonly performed for privately held companies, non-profit
organizations, and government entities. The choice of auditor is typically made by the company’s
board of directors or audit committee, and the auditor is typically appointed for a one-year term.
In summary, internal auditing focuses on the organization’s internal processes and controls, while
external auditing focuses on the accuracy of the organization’s financial statements. Both types of
auditing are important for maintaining the credibility and accountability of an organization.
The primary difference between internal and external audits is that internal audits are focused on
improving the organization’s internal processes and controls, while external audits are focused on
providing an independent assessment of the organization’s financial and operational practices.
Comparing Internal and External Audits
There are multiple differences between the internal audit and external audit functions, which are as
• Internal auditors are engaged by the company, whereas external auditors are chosen by a
• Internal auditors work for the company, whilst external auditors are employed by an outside
• While external auditors must be overseen by a CPA, internal auditors are not required to be
• External auditors are accountable to shareholders, whereas internal auditors are
accountable to management.
• While external auditors must adhere to specified formats for their audit opinions and
management letters, internal auditors are free to present their findings in any kind of report
• Management use internal audit reports, whereas investors, creditors, and lenders utilize
external audit reports.
• Internal auditors are free to provide staff with advice and other consulting services, whereas
external auditors are prohibited from providing an audit client with excessive assistance.
• Internal audits are carried out throughout the year, whereas external audits are carried out
once a year;
• Internal audits will look at issues relating to company business practices and risks, whereas
external auditors will look at the financial records and provide an opinion regarding the
company’s financial statements. External auditors will also offer review services three times
a year for clients who are publicly-held.
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Both internal and external auditors assist businesses in ensuring that their financial
reporting is consistent with accounting principles, that internal controls are operating
effectively, and that they are in conformity with all applicable laws and regulations.