This article is all about Difference Between Internal Audit and External Audit.
The audit identifies the procedure of independent evaluation or checking of the financial claims and details of a business, to be able to give an impartial view of their accuracy and reliability and integrity.
The audit has developed to encompass the non-financial areas and functional issues in its ambit e.g. management audit, risk audit, performance audit, etc. The audit has two main categories that are known as the internal audit and external audit.
The primary difference between Internal Audit and External Audit is simple as the inner audit is constant, and targets learning the problems or frauds and bettering the operations in the business. External audit is self-employed, and targets critical analysis of financial claims and providing an impartial judgment on their correctness.
Comparison Table “Internal Audit and External Audit”
|Legal Position||Not Compulsory or Discretionary||Compulsory by Law or Obligatory|
|Character of Audit||Carried Out on Continuous Basis||After the Planning of Financial Claims Usually on Every Year Basis|
|Main Purpose||To Examine And Increase The Performance Of Accounting, Financial Activities, Governance, Risk Management And Other Control Operations Of The Company.||To Add Trustworthiness To The Financial Claims And Accounts Of The Business.|
|Range||Financial Assertions and Details, Various Hazards, And Other Functional Activities||Financial Claims and Records|
|Kind of Checking||Checking Of Virtually All The Financial Assertions And Documents||May Use Test Checking Or Test Checking|
|Scope||Drove by The Management of the Company||Established by The Relevant Legislation or A Regulator|
|Concentrate||To Find Out Mistakes And Frauds||To Confirm The Accuracy And Reliability And Consistency Of The Financial Statements|
|Submission of Report||To The Management of The Company||To The Shareholders, Or In Some Instances, To A Regulator|
|Direction||Recommendations for Improvement of Accounting and Related Activities to The Management||No Such Suggestions|
|The Activity of Audit||Transported Out by A Worker of the Company||Taken Out by an Unbiased Person or Agency|
|Session||Session by the Management of the Company||By the Shareholders of the Business, or a Regulator|
|Certification||Any Specific or Approved Certification Is Not Compulsory||Some Specific or Approved Certification is compulsory|
|Remuneration Type||Company Worker Gets an Income Usually On a Regular Basis||Specific Audit Rate, Usually Predicated On the Audit Assignment|
|Remuneration fixation||By The Management of the Company||By The Shareholders Of The Business|
|Shareholder Conferences||Does Indeed Not Show Up at The Conferences of the Shareholders of the Company||May Go to The Shareholder Meetings|
|Removal of Auditor||Removed by The Business Management Removed||By The Shareholders Of The Business|
|Professional Misconduct||Not Prosecuted for Professional Misconduct||Can Be Prosecuted for Professional Misconduct According to The Procedure Approved Under the Relevant Law|
Brief Explanation Internal Audit VS. External Audit
Meaning of Internal Audit
The internal audit identifies the critical study of the financial claims and records of the business or company, by its employees. These employees are called internal auditors and appointed by the management of the business. The opportunity to work depends upon the management of the business, especially the audit committee.
Internal Audit is not compulsory naturally. It is completed almost continuously. Lately, internal audit often includes the critical overview of the non-financial and functional aspects or activities of the business, for example, management audit, performance audit, IT audit, etc.
Meaning of External Audit
The external audit identifies the 3rd party critical study of the financial claims and records of a business or business. This Audit is obligatory for each and every distinct legal entity. It really is carried out following the planning of the financial claims of the entity.
An authorized or impartial auditor, called external auditor, is appointed to handle the procedure of audit and present an unbiased judgment on the financial assertions and documents of the business. The external auditors perform the audit under the procedures of a relevant law with respect to shareholders or a regulator. The opportunity to work depends upon the applicable rules or regulation.
The primary responsibility of external auditor is to handle the statutory audit of the ultimate accounts and present an unbiased view on if they give a true and reasonable representation of the genuine budget of the entity.
Similarities Between Internal Audit and External Audit
The essential auditing procedure for both the internal audit and external audit is nearly the same. Both derive from the sound ideas and techniques of accounting and auditing. The purpose of both the Internal Audit and External Audit is learning the problems and discovering the frauds.
The Internal Audit and External Audit want to gauge the reliability of financial claims and data. Both of the Internal Audit and External Audit must give a neutral judgment on if the financial assertions and records give a true and reasonable representation of the real budget of a business or business.
Key Variations Between Internal Audit and External Audit
Here are the main element variations between your Internal Audit and External Audit.
- Legal Position: Internal audit is discretionary or not compulsory, but the external audit is obligatory or compulsory for legal reasons.
- An Aspect of Audit: Internal audit is completed on an ongoing basis; while the external audit is completed after the prep of last accounts and financial claims usually on every year basis.
- Main Target: Objective of internal audit is to judge and increase the efficiency of accounting, financial activities, governance, risk management and other control techniques of the business; while the aim of the external audit is to include trustworthiness to the financial assertions and records of the business.
- Coverage: Internal audit addresses financial claims and documents, various hazards, and other functional activities; while external audit comforters financial assertions and records.
- Kind of Checking: Internal audit consists of the checking of virtually all the financial assertions and details; while external audit may be completed through test checking or test checking.
- Opportunity: The range of internal audit depends upon the management of the business; while the range of external audit depends upon the relevant regulation or a regulator.
- Focus: The principal target of internal audit is to determine problems and frauds; as the primary concentration of external audit is to check the correctness and consistency of the financial assertions, and judge if the financial statements give a true picture of the genuine budget of the entity.
- Report Distribution: Internal audit article is posted to the management of the business or corporation; while an external audit article is published to the shareholders, or in some instances, to a regulator.
- Instruction: Internal audit entails making ideas for the improvement of financial assertions, accounting, and related activities to the management of the business or the business; whereas external audit usually will not require making such ideas, except occasionally with specific requirements.
- Audit Activity: Internal audit is usually completed by a worker of the business, but the external audit is completed by an unbiased person or organization.
- Visit: Internal auditor is appointed by the management of the business; as the external auditor is appointed by the shareholders of the business or a regulator.
- Certification: Any specific or approved certification is not compulsory for internal auditor; however, many specific or approved certification is compulsory for an external auditor.
- Type of Remuneration: Internal audit is completed by the company worker who gets an income usually on regular basis; while a particular audit charge is purchased the external audit, usually predicated on the audit project.
- Remuneration Fixation: Internal auditor remuneration, i.e., salary is set by the management of the business; while payment for external audit is set by the shareholders of the business.
- Shareholder Conferences: Internal auditor will not attend the conferences of the shareholders of the business; whereas external auditor may sign up for the shareholder conferences.
- Auditor Removal: Internal auditor can be removed by the business management; whereas external auditor can be removed by the shareholders of the business.
- Misconduct: The audit which is performed internally is not prosecuted for misconduct; while external auditor can be prosecuted for professional misconduct according to the procedure approved under the relevant rules or statutes.
Conclusion: Difference Between Internal Audit and External Audit
Internal audit and external audit are completed separately by the several folks: internal employees and self-employed alternative party respectively. But, the internal audit and external audit aren’t opposed to one another. Instead, the internal audit and external audit are really complementary.
External auditors get help from the internal auditors for the in-depth understanding of the accounting system of the entity and better knowledge of the technical areas of the business enterprise.
On the other hands, internal auditors may study from a superior professional understanding of the external auditors; and use the guidelines in the internal audit. Though, the external auditors may count on the task of the internal auditors; nevertheless, they cannot change their response.
If any mistake or fraudulence remain undetected; the external auditors will only be held accountable.