Key Difference Between Internal Audit and External Audit
An audit is an impartial review of an organization’s or individual’s books of accounts, financial statements, or reports to ensure accuracy and compliance with laws and regulations. Internal and external audits exist.
The Financial Report covers the balance sheet, income statement, cash flow statement, etc. An audit checks if a financial report fits an organization’s financial situation at a certain date. The auditor evaluates the company’s financial report according to government standards.
Internal Audit vs External Audit Comparison Table
A comparison chart shows important distinctions between Internal Audit and External Audit:
| Feature | Internal Audit | External Audit |
|---|---|---|
| Purpose | Provides independent, objective assurance and consulting services to improve the organization’s operations | Ensures the accuracy and reliability of financial statements and compliance with regulations |
| Independence | Works within the organization but aims to maintain objectivity and independence | Conducted by external, independent auditors who are not part of the organization |
| Reporting Line | Typically reports to the highest levels of management (e.g., Board of Directors, Audit Committee) | Reports to shareholders and stakeholders through financial statements |
| Scope of Work | Covers a broad range of activities, including financial, operational, and compliance audits | Focuses primarily on financial information and compliance with accounting standards |
| Frequency | Conducted periodically throughout the year based on a risk-based audit plan | Usually conducted annually as part of the financial reporting process |
| Regulatory Requirement | May be required by regulatory bodies or industry standards, but primarily serves internal needs | Mandated by regulatory bodies, such as the Securities and Exchange Commission (SEC) |
| Risk Assessment | Considers a wide range of risks, including operational, strategic, and compliance risks | Primarily focused on financial statement risks and compliance risks |
| Nature of Findings | Identifies areas for improvement and provides recommendations to enhance internal controls and efficiency | Verifies the accuracy of financial statements and ensures compliance with accounting principles |
| Responsibility for Remediation | Internal management is responsible for implementing recommendations | External auditors provide recommendations but are not responsible for implementation |
| Confidentiality | Internal audit reports are typically confidential and shared within the organization | External audit reports are made public and shared with regulatory bodies, shareholders, and stakeholders |
| Continuity of Relationship | Ongoing relationship with the organization, providing continuous improvement recommendations | Typically, a new external audit engagement is initiated each year |
| Cost | Generally borne by the organization as part of its internal control and risk management processes | The organization bears the cost of the external audit engagement |