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Understanding the difference between internal and external auditor


The internal auditors and the external auditors are helpful for all the companies in ensuring various things. Such as ensuring the financial reporting that is based on the relevant accounting laws. Be it the internal auditor or external auditor, the part of doing risk assessment is a vital role for them. Along with the same, a proper understanding of the industry is highly required. But there is a difference between internal and external auditor and their working process for sure.

The major difference between internal and external auditor

Basically, an internal auditor work inside the organization as an employee. On the other hand, an external auditor will be independent in working for the organization. Internal audits are known to be a discretionary process, which is done within the organization. While on the other hand, an external audit is known to be mandatory for an organization to be done.

Companies have to go through this annual basis as per the status quo and regulations of the financial laws. Lenders and also the other stakeholders of the company also might require the audited financial statements. It helps a lot in the financial guidance and support of the people in the organization.

Internal auditing 

The concept of internal auditing will help us in understanding the difference between internal and external auditor.

Internal auditing is a very independent process of consulting in order to add and also improve the operational value of the company. We can say that the major motive for doing internal audits by the internal auditors is required for the following reasons.

  1. Detecting the fraud going on in the company or any fraudulent activities.
  2. Meeting the strategic objectives which were being set up by the owners of the company.
  3. Improving the overall operations of the company in order for a better and smooth process.

Basically, these internal auditors are also responsible for ensuring that corporate governance is going on or is functioning smoothly in the company. Along with the same, an internal auditor is also important because they review special projects in terms of budgeting and internal processes of the same.

The major difference between internal and external auditor is that all the internal auditors will be making sure that external audits can be done. The internal auditor does the internal auditing based on the size of the organization. Basically, sometimes it is also outsourced.

The scope of the internal auditors has been performed directly by the management. However, internal auditors keep the objectivity and independence of the reports by keeping the audit community or the board of management in the loop of the same. Along with the same all the reports are being shared with the senior management so that the process can be optimized and streamlined.

One more major difference between internal and external auditor is that internal auditing is performed on a continuous basis. Along with the same, the major focus is on both directions forward and backward. Plus in addition to the same, the complete financial position and non-financial metrics of the company are dependent on internal auditing for managing the risk on an overall parameter.

Internal editing also verifies that the financial transactions of the company have been properly mapped and recorded. It also ensures the long-term growth of the company by ensuring that the company’s information system is on the same page as internal auditors.

External auditing 

The concept of external auditing will help you understand the difference between internal and external auditor. Internal auditors provide satisfaction to the company’s information system. On the other hand, external auditing provides satisfaction to investors, lenders, and all the other stakeholders of the company.

External auditors majorly depend on the G.A.A.P. or generally accepted accounting principles of the United States of America. The major and primary responsibility of external auditors is to be independent and audit the company’s financial documents. External auditors provide an assurance to the company people that they verify all the company’s financial results and documents with respect to accounting standards.

Along with the same, the external auditors also perform their work in the bulk that too at the end of the year. However, it completely depends on the company and its processes. Because sometimes there is a continuous focus on the external auditing part. And on the other hand, sometimes mini audits are being performed throughout the year in the company.

The difference between internal and external auditor

Here are the major and top most clear difference between internal and external auditor mentioned in the article. Have a look at the same.

Internal auditors 

  1. Internal auditors are known for analyzing the complete data sets of the business’s financial reports. This helps in improving the performance of the company and achieving the goals of the business.
  1. These auditors are known for improving the overall value of the company.
  1. All the internal auditors ensure the smooth operations of the organizations.
  1. Internal auditors include the team of B.O.D.s and all the people from the top level management.
  1. Internal auditors are the people who are employed by the company. They are known to be part of the company.

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External auditors 

  1. External auditors explain the current financial position of the company. It also suggests so many things such as changes to be done and measures to be taken. All of these changes are according to federal laws.
  1. All the external auditors ensure the reliability and fairness of the financial documents of the company. Along with the same, they are also known for ensuring the verification of the documents.
  1. Along with the same, external auditors are known to be responsible for maintaining the proper records and financial statements of the company. These documents are maintained with the proper compliance.
  1. These auditors are not the employees of the companies.
  1. They take special care of investors, customers, regulators, and other stakeholders of the company.



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