If you want to know the main difference between internal and external auditor, read this post until the end.
Internal and external audits are complementary functions, and it is essential for them to work closely. Yet, they can have different objectives to fulfill. The internal and external auditors do not conflict with each other, but together they can contribute to good governance. There are multifaceted differences between internal and external auditor. In this post, we will understand the main difference in their focus areas, objectives, and functions.
Let’s proceed and learn more!
Major Difference Between the Functions of Internal and External Auditor
Internal auditors mainly cover non-financial information. It may include a holistic view of the organization’s governance. Besides, it also controls the system and risk. But, external auditors are more accountable for the business accounts’ accuracy. In some industries, external auditors are also responsible for maintaining the organization’s compliance. Read more to understand the difference between internal and external auditor in detail.
1: Internal & External Auditors
In the first place, you need to understand who are internal and external auditors. An internal auditor may be an employee of the organization. Alternatively, the organization may reach out to internal audit services for the task.
Contrarily, external auditors are appointed by the shareholders of the company. They are supposed to work independently to achieve the goal of the audit process.
2: Need for An Audit: Internal Vs. External
The next difference between internal and external auditor is their need. Larger organizations carry out internal audits to improve the company’s system. Also, they aimed at developing risk management policies. However, the internal audits are done at one’s discretion.
Contrarily, external audits are conducted on a case by case basis. In the first place, an organization determines the need for an external audit. Then they get it done to ensure the financial accuracy of the firm.
3: Key Responsibilities
Now let’s find the difference in the responsibilities of internal and external auditor:
Responsibilities of An Internal Auditor
In the first place, let’s discuss the responsibilities of an internal auditor
An internal auditor needs to conduct regular internal audits. The frequency can be on a daily, weekly, monthly, quarterly, or annual basis. Some of the industries do internal audits more often as compared to the others.
The main objective of the internal auditor is to check and find the organization’s risk. Also, it analyzes and controls risk for the organization.
Besides, he is also responsible for providing report findings and recommendations. End-users can be the organization board, manager, and other members.
An internal auditor is a reliable consultant for an organization. He is responsible for suggesting management on how to deal with the company’s risks and manage goals simultaneously.
The next responsibility of an internal auditor is to promote organizational ethics. Also, helping the organization to identify inappropriate conduct.
The biggest responsibility of an internal auditor is to make an impartial evaluation. The auditor is supposed to give fair and untampered insights to the organization.
Furthermore, the internal auditor is also responsible for detecting fraudulent acts. The auditor also detects errors and provides a control for them.
Responsibilities of An External Auditor
This section will help you to understand the difference between internal and external auditors. The below-given points summarize the primary responsibilities of an external auditor:
The external auditor’s main role is to provide an independent opinion on the financial statements of an organization.
The next responsibility of an external auditor is to understand the work environment. Besides, the operations of the organization and its internal controls.
The foremost objective of the external auditor is to serve the shareholder of the organization. To get it done, the auditor has to provide an opinion about the soundness of the preparation of the organization’s financial reports.
Above all, certifying the financial statement of the organization is one of the most important key roles of the external auditor.
The external auditor is also responsible for determining the real market and financial situation of the firm. It can help an organization to make well-informed managerial decisions.
4: End Users of The Two Audit Report: Internal Vs. External
Internal auditors document their findings and report them internally to the audit committee or the board. Besides, they also review the recommendations. Furthermore, they also present a mapped report that explains the risk and objective management of an organization together. In addition, the internal auditors focus on the identified strengths or weaknesses of the firm. These audit reports are not made available to the public.
External auditors, on the other hand, report primarily to the shareholders of the company. But, the end-users of the report can also be the general public. It is the main difference between internal and external auditor end users. The main report format adheres to the Auditing Standards. Its main aim is to ensure that the financials give an accurate and untampered view and comply with legal requirements.
5: Duration of The Audits
The audits carried out by the internal auditors are a continuous process. It runs throughout the year as an integral function of the organization. On the other hand, external audits take place once a year.
6: Legally Bound
Internal audits are not legally bound and are optional. On the other hand, external audits are legally bound and are compulsory as per the government act. Therefore, the external auditors need to conduct the audits every year.
7: Range of The Two Audits
The next difference between internal and external auditors is the range of the audits. The management or the organization decides the range for the external audits. On the other hand, the government bodies decide the range of an external audit. It should adhere to the laws and regulations.
8: How Do the Internal and External Auditors Follow Up?
The internal audit follow-ups are agreed upon on a case-by-case basis. The audit follow-ups ensure the appropriate implementation of the recommendations. Furthermore, it also provides consultative help in the implementation of the recommendations.
Contrarily, there are no external audit follow-ups until the planning stage of the next year’s audit. The past issues are also considered during the same phase.
This post highlights the key difference between internal and external auditor. Besides, it explains how their work objectives differ from each other. If you liked it and need more similar posts, feel free to visit our blog section.