Internal and External Audit

Internal and External Audit

Internal and external audit are two difference concepts, Internal audit is kind of management controlling function, where external audit is independent opinion over the accuracy of financial statements.

1.    Appointment & Removal

Internal auditor are appointed and removed by the management, where external auditor is appointed by shareholders or equity holders. External auditors are appointed in a shareholder meeting. Internal auditor can easily be removed by management, while external audit can be removed by shareholder with permission of regulator.

2.    Term of Office

Internal auditor term of office is determined by the management, and such term may vary organization to organization, while in case of external auditor, the term of office is not more than one financial year (However, auditor may be re appointed).

3.    Scope of Work

Internal audit scope of work is defined by the management and ordinarily comprise of checking the compliance of financial rules by the finance department, while external auditor scope is determined by external auditors themselves in accordance with the international auditing standards.

4.    Reporting

Internal audit report is addressed to management, where external audit report is addressed to shareholder. Internal audit report content varies organization to organization, where in case of external auditor a standard format and terminology are used.

5.    Independence

External auditor enjoys full independence during the performance of audit, where internal auditors are not fully independent of management. In fact internal auditor is reporting to management against management, and therefore internal auditors are not considered fully independent.

6.    Legal obligation

External audit is a legal obligation, where internal audit is optional. External audit is a legal obligation, because many stakeholders have stakes in corporate business and external audit helps these stakeholders to safeguard their interest.

7.    User of  Report

Internal audit report is only used by the management for taking appropriate control action for non compliance with rules, where external audit report is used by number of user for taking informed decisions.