Internal and External Audit Differences You Need to Know


As an independent review of firm financial statements, the word “audit” is used to describe this process. To begin with, we conceive of internal and external audits as two different categories. Due to their voluntary nature, internal audits are not mandated, but they may be used to evaluate a company’s operating processes. The management of the company being audited selects the work area for this kind of audit.

External audits, on the other hand, are a requirement for every legal entity in existence. A third-party auditor is recruited inside the organisation to conduct the auditing process and provide an opinion on the financial statements. According to the relevant law, the scope of employment is established. So What is the Difference Between Internal and External Audits?

Most people cannot tell the difference between these two types of audits since the auditing process is practically same for both. However, the line dividing an internal audit from an external audit is not as black and white as it seems.

The Term “Internal Audit” Definition

We mean by “internal auditing” the process of conducting an impartial and rigorous review of internal operations inside a company’s structure and systems. The primary goal of this job is to study the firm’s day-to-day operations and provide constructive feedback in order to assist the organisation grow.

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What Does “External Audit” Mean?

When a third party performs a regular, methodical, and objective audit of a company’s financial records, it is referred to as an external audit. An external audit’s principal goal is to offer the general public with an opinion on:

Among the key differences between an internal and external audit are those listed below.

The term “internal audit” refers to the continuing auditing work carried out by the company’s own internal audit department. One definition of an external audit is a non-affiliated third-party examination and evaluation of an organization’s annual financial statements with the purpose of forming a judgement on those statements.

  • Internal audits are optional, but external audits must be performed.
  • The produced Internal Audit Report is sent to the top management. This report is given out, however, to a variety of parties that have an interest in the company, such as the company’s shareholders as well as the government and holders of debenture securities
  • In contrast to the external audit, which takes place once a year, the internal audit is a continuous process.
  • Internal audits concentrate primarily on the company’s day-to-day operations and offering suggestions for how they might be improved. An external audit, on the other hand, aims to look into and assess the accuracy and reliability of financial reports.
  • An opinion on the efficiency of the organization’s operational operations is presented by Internal Audit. The external audit, on the other hand, provides a judgement on the financial statement’s truth and fairness.
  • The internal audit’s scope is determined by those in charge of governance (TCWG). by comparison, the scope of a government audit is normally set by law.
  • They are regarded to be employees of the company since they are appointed by management. However, since they are chosen by the firm’s members, External Auditors are not regarded to be employees.


Internal and external auditing are not in contradiction with one other. They, on the other hand, work well together. This does not, however, absolve the external auditor from any of his or her obligations even if he or she uses the work done by the internal auditor.

Bonnie Baldwin