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:

  1. Internal Audit
  2. 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:

  1. To verify that the financial statements of the client provide an accurate and fair response.
  2. 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.
  3. The financial statements of the client are prepared according to the relevant accounting standards

Difference between an Internal Audit and External Audit

Both internal and external audit needs to focus on different areas of business and also the purpose of both the audits differ. The management of the company needs to understand the requirements of the company and accordingly decide if the company requires an Internal Audit or an External Audit.

The difference between the internal audit and the external audit has been provided below in a tabular form.


Internal Audit

External Audit

Definition An Internal Audit is an Audit of the company which is performed by a specific department or a person of the same organization An External Audit is the examination of the company, which is performed by a third party or any independent audit firm.
Objective The main objective of the internal audit is to perform a routine review of the business activities and also analyze them to suggest improvements to be made. The main objective of an external audit is to check if all the information provided in the financial statement is accurate.
Appointed By The internal auditor is appointed by the management or the board of directors. The members and the shareholder appoint the external auditor.
Opinion Provided The auditor provides his opinion to increase the effectiveness of the business activities of the company. The auditor provides an opinion about the accuracy and truthfulness of the financial statements of the company.
Period of Audit Internal audit is dependent on the requirement of the company and upon the decision of the management. An external audit is conducted once every year.

These are the differences between an internal audit and an external audit. Though these have distinct differences, they both need to be conducted together. Both audits need to work closely together to ensure that the company is moving in the right direction. The audit of a company should always be conducted by a professional because if there is even a small mistake during e process, then the company may have to face huge consequences.

If you are looking to conduct an audit of your company in the United Arab Emirates, then you should have a look at the services provided by JAXA Chartered Accountants. The experts at JAXA also offer various other services, which will ensure that your company will achieve maximum profitability and will comply with all the rules and regulations of the jurisdiction.

For more information about the services offered, Feel free to Contact Us. We will be happy to help.

Read more on External Audit:

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Why Do Companies Require External Audit?

Reasons why External Audit should not be avoided

Reasons why External Audit is important to a Business

What are the Objectives of an External Audit?

4 Pre-Requisites of an External Audit

5 Tips to Consider While Conducting the First External Audit

Importance of Data Analytics for Conducting External Audit