What is the Difference between Internal and External Audit?

Ashish M. Shaji

04 Apr, 2022

What comes to your mind when we talk about audit. Some may think of it as a painful and gruelling session to uncover mismanagement. But that can be misleading reflection of audit. Without performing the audit, there can be a lack of integrity that can prop up. Hence audit is the foundational requirement. An audit is an unbiased type of examination and evaluation of the financial statements of a company/organization. In this article, we look to understand the two types of audit- Internal and External Audit.

What is Internal Audit?

Internal audit is an unbiased and systematic examination and evaluation performed within the business organization. It involves assessment of the accounting and internal control system, detection of fraud and examining routine operational activities.

Internal audit increases the value of the organization and such an audit is conducted by the internal auditors who may be employees of the same organization.

What is an External Audit?

 The periodic, systematic and independent examination and evaluation of the company’s financial statements performed by a third party for specific purpose is called External Audit.

The auditor for external audit is appointed by the members of the company. Such an auditor should be independent, meaning he should not have any association with the company which ensures him to work in an impartial manner. External audit helps the business and the government with a check of financial^[1] aspects. It provides assurance to the investors and other stakeholders that the financial statement of the company is accurate and fair.

Internal and External Audit- Key Differences

Internal Audit and external audit differ from each other on various fronts which are often overlooked or not considered by many. Since audit is an important element, one cannot afford to misunderstand these two terms. The difference between the two have been explained in the table made below:

Takeaway

Internal and external audit may have points of differences among them but they do not work in isolation meaning both types of auditing is essential to get maximum benefit from the audit process. Audits help an organization in the long run to function efficiently.

Read our Article:An Internal Audit– Companies Act 2013 along with requirement of LODR 2015