Comparing Internal and External Audits

There are numerous differences between the internal audit and external audit functions, which are as follows:

• Internal auditors are company employees, whereas external auditors work for an outside audit firm.
• Internal auditors are employed by the company, whereas external auditors are hired by a shareholder vote.
• Internal auditors do not have to be CPAs, whereas a CPA should regulate the actions of external auditors.
• Internal auditors are answerable to management, whereas external auditors are accountable to the shareholders.
• Internal auditors can issue their findings in any kind of report format, whereas external auditors should use particular formats for their audit opinions and management letters.
• Internal audit reports are used by management, whereas external audit reports are used by stakeholders, like investors, creditors, and lenders.
• Internal auditors can be used to offer advice and other consulting assistance to employees, whereas external auditors are restricted from supporting an audit client too meticulously.
• Internal auditors will scrutinize issues related to company business practices and risks, whereas external auditors inspect the financial records and issue an opinion concerning the financial statements of the company.
• Internal audits are performed throughout the year, whereas external auditors conduct a single annual audit. If a client is publicly-held, external auditors will also offer review services three times per year.

In short, the two functions share one word in their names but are otherwise rather different. Larger organizations characteristically have both functions, thereby guaranteeing that their records, processes, and financial statements are closely scrutinized at regular intervals.