Difference between Internal Audit and External Audit
The Auditing process is very diverse and requires great caution on the part of the business management. The management has to understand the present requirements of the company and accordingly conduct an audit of the company. There are two different types of Audit to be performed by an auditor. These are:
- Internal Audit
- External Audit
Both the types of audits are explained below:
Internal Audit
An Internal audit is a process in which the internal controls of the company are evaluated. This means that all the internal controls, including corporate governance compliance, etc. are ensured. These also act as an important tool to discover the operational problems in the company and assist in finding a solution for the said problem.
Internal Audit is an important function in large organizations, and it is followed mostly in publicly held business. An internal audit is not only a tool to keep watch on the company but also helps in adding value to the operations of the company. The CON for conducting an internal audit is that the auditing team or the auditor may be biased and this may provide a false result. Read importance and need of internal audit.
The internal Audit team directly reports to the Board of Directors or a Special Committee designated by the board. It does not report to the management team per se as then it will have to be working for the management team of the company, which it is supposed to be analyzing and examining.
External Audit
An External Audit is a process that is conducted by a third party that has no ties to the company or is in no position to influence any decision for the company. Mostly an external audit results in the creation and maintenance of financial statements of the business.
The external audit is conducted to fulfil the following objectives:
- To verify that the financial statements of the client provide an accurate and fair response.
- To verify if the financial statements of the client provide a complete picture and are complete and comply with all the rules and regulations of the jurisdiction.
- The financial statements of the client are prepared according to the relevant accounting standards
