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Difference Between Internal And External Auditing

Difference between Internal and External Auditing


Auditing can be define as the process of reviewing and confirming your financial
reports. Audits verify that you have created accurate and reliable financial reports and that no
fraudulent activities are happening within the business. There are two main types of audit
Internal and External

What is Internal Auditing? Internal auditing is all about checking the internal processes
and controls within an organization. It’s like having an in-house detective team. Internal auditors
assess things like financial records, operational procedures, and compliance with laws and
regulations. They help identify any risks or area for everything runs smoothly and efficiently.

What is External Auditing? External auditing can be define as an independent
auditors who come from outside the organization. These auditors review the financial statements
and records to ensure accuracy and fairness. Think of them as the financial detectives who give
an outside perspective.

Differences Between Internal and External auditing
1. The meaning of internal and external auditing can be similar but the key difference is that internal auditing focuses on internal processes and controls, while external auditing looks at financial statements from an independent standpoint.

2. Internal auditors work within the company, while external auditors come from outside. Both types of auditing are important for maintaining trust, transparency, and accountability in a company. While Internal audits focus on measuring current performance and finding areas for improvement. External audits focus on proving the accuracy and veracity of financial statements

3. Internal auditing does not have to be performed my professionals as they can be performed by staffs of the company. External auditing on the other hand must be performed by professionals and experts that are highly skilled in the field.

4. The channel of report is another major difference. While internal auditors report to the Management, external auditors report to the stake holders or board of directiors

5. Internal auditors are paid salary for their job as they are workers in the firm, while external auditors audit for a stipulated fee

6. Internal auditors can be used to provide advice and other consulting assistance to employees, while external auditors are constrained from supporting an audit client too closely.

7. Internal auditors are hired by the management of the company, while external auditors are appointed by a shareholder

Similarities Between Internal and External Auditing
1. Assurance: Both internal and external auditors provide assurance regarding the accuracy and
reliability of financial information.
Objectivity: Both types of auditors strive for objectivity in their assessments
2. Risk assessments: internal and external auditors assess and evaluate the organization’s risks
Reporting: internal and external auditors prepare reports summarizing their findings,
observations, and recommendations.
3. Compliance: internal and external auditors assess whether the organization complies with
internal policies, external regulations, and industry standards.
Audit procedures: while there are many be differences in the specific procedures used, both
internal and external auditors perform testing and examination of final records, transactions, and



Importance of Internal and External Auditing
1. Internal controls: Internal auditing helps organization establish and maintain robust internal
controls. In addition it controls helps safeguard assets, prevent fraud, and ensure compliance with laws
and regulations. In addition this will make an organisation more effective
2.Risk management: Both internal and external auditing play a key role in identifying and
assessing risks faced by an organization. By evaluating controls and procedures, auditors help
identify vulnerabilities and develop strategies to mitigate risk
3. Compliance and Legal Obligations: Auditing ensures that organizations adhere to legal and
regulatory requirements. Both internal and external auditors assess whether the organization
complies with industry standards and applicable laws.
Stakeholder confidence: External auditing is particularly important for providing confidence to
external stakeholders, such as investors, lenders and shareholders.


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