Audit & Assurance Internal Audit Vs.

External Audit Mwamba Ally Jngu: FCPA; PhD

Internal Auditing
Internal auditing is the independent and objective evaluation of an organization’s
internal controls to effectively manage risk within its risk appetite. Internal audit should
monitor any weakness and ensure that all identified weaknesses are also addressed.

Key Differences between Internal Audit and External Audit

 Internal Audit is a constant or continuous audit activity which is performed by the

internal audit department of the firm or an organization. External Audit, on the other
hand, is an examination and evaluation by the third or the independent body, of the
annual statements of accounts of the organization or an entity to give an opinion thereon.
 Internal audit is discretionary, which means there is no compulsion for the same, but
the external audit is compulsory.
 The internal audit report will be submitted to the management. However, the external
audit report will be handed over to the major stakeholders such as the shareholders,
creditors, debenture holders, suppliers, the government, etc.
 Internal audit is ongoing and a continuous process, while the external audit is conducted
on an annual basis.
 The essential purpose of the internal audit is to review the routine processes of the
business and give suggestions for its improvement wherever required. Conversely, an
external audit will aim at analyzing and verifying the accuracy, completeness, and
reliability of the financial statement.
 Internal audit will provide an opinion on the effectiveness of the operational process or
the activities of an organization. On the other hand, an external audit does give an
opinion of the true and fair view of the financial statements.
 Internal auditors are the employees of an organization and they are appointed the
management of the organization itself. In contrast, external auditors are not the
employees, the shareholders or the members of the company appoint them.

However,

 Both functions require the auditors to be independent, objective and competent.

 Both are interested in evaluating and testing the effective operations of the internal
control system.
 Both auditors interested in ensuring that the company keeps proper books of records.
 The internal auditor ensures errors or frauds are prevented and detected by having
strong internal control system while the external auditor has the incidental duty of
detecting and preventing material errors and frauds which would otherwise distort the
true and fair view of the financial statements.

1
Audit & Assurance Internal Audit Vs. External Audit Mwamba Ally Jngu: FCPA; PhD

Internal Audit vs. External Audit Comparison Table

The Basis Of Internal Audit External Audit

comparison

Meaning It is an ongoing audit function It is an audit function that is

performed within the organization performed by an independent
by an internal auditing team. firm.

Conducted by The internal auditor usually from The external auditor is from
inside the organization and its outside the organization (Third
employee of the organization and Party), and the shareholder of
appointed by Management. the organization appoints it.

Reports Management Shareholders

Audit Period Continuous process Once in a year

Purpose To evaluate the routine activities To Investigate and verify the

and provide control for the financial statement of the
improvement. organization.

Legally No, an internal audit is not The external audit is compulsory

Bound required by law. or legally bond as per the
government act.

Range The management of the A range of external audit is

organization decides the range of decided by a government body
internal audit. or as per rules and regulations.