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On the contrary, External Audit which is obligatory for every separate legal entity, where a third party is brought to the organization to perform the process of Audit and give its opinion on the Financial Statements of the company. Here the working scope is determined by the respective statute. The auditing process of the two types of the audit is almost same and that is why people get confused between these two. However, there is a fine line of difference between internal audit and external audit. Content: Internal Audit Vs External Audit
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Definition of Internal AuditBy Internal Audit, we mean that an unbiased and systematic appraisal function, performed within the business organisation, with the purpose of reviewing the day to day activities of the business and providing necessary suggestions for the improvement. Internal audit performs a wide spectrum of activities such as:
The main aim of the internal audit is to increase the value of an organisation’s operation and to monitor the internal control, internal check and risk management system of the entity. An Internal audit is conducted by the internal auditors who are the employees of the organisation. It is a separate department, within the organisation where a continuous audit is performed throughout the year. Definition of External AuditThe periodic, systematic and independent examination of the financial statements of the company conducted by a third party for specific purposes, as required by statute is known as External Audit. The main aim of external audit to publicly express an opinion on:
For carrying out an external audit, the auditor is appointed by the members of the company. He should be independent, i.e. he should not be connected to the organization in any way so that he can work in an impartial way without any influence. The auditor has the right to access books of accounts to obtain necessary information and provide his opinion to the members by way of the audit report. The report is of two types:
If the report is modified, the auditor has to give reasons for the same. The following are the major differences between internal audit and external audit:
ConclusionInternal Audit and External Audit are not opposed to each other. Instead, they complement each other. External Auditor may use the work of the internal auditor if he thinks fit, but it does not reduce the responsibility of the external auditor. Internal Audit acts as a check on the activities of the business and assists by advising on various matters to gain operational efficiency. On the other hand, external audit is entirely independent in which a third party is brought to the organisation to carry out the procedure. It checks the accuracy and validity of the annual accounts of the organisation. What is the difference between the independence of internal auditor and that of an independent auditor How can an internal auditor be truly independent?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.
What are the differences between internal auditors and external auditors?Internal auditors will examine issues related to company business practices and risks, while external auditors examine the financial records and issue an opinion regarding the financial statements of the company. Internal audits are conducted throughout the year, while external auditors conduct a single annual audit.
What is meant by the independence of the external auditor?To be independent, the auditor must be intellectually honest; to be recognized as independent, he must be free from any obligation to or interest in the client, its management, or its owners.
What does independence mean in internal audit?Practically, independence is achieved by assuring that the internal audit activity has no management responsibility for any of the organization's non-audit functions subject to internal audit assessments, and by separating management of the internal audit activity from the functional oversight of the organization's ...
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