How do internal and external auditors differ and how should they relate?

Internal and external auditors differ on the following aspects:

1) Independence from the company 

2) The objective of their work 

3) The user of their reports

Internal and external auditors both do testing on company's internal controls but to a different extent. Also, external auditors do sometimes use the internal audit report in understanding the internal control environment of an entity.

Internal auditors are integral to the organization and provide ongoing monitoring and assessment of all activities. On the contrary, external auditors are independent of the organization, and provide an annual opinion on the financial statements. The work of the internal and external auditors should be coordinated for optimal effectiveness and efficiency.

Internal auditors are appointed by management and report to management.  External auditors are independent auditors and report to the owners.

External auditors are statutory auditors and internal auditors are part of the internal control system

• Internal auditors are company employees, while external auditors work for an outside audit firm.
• Internal auditors are hired by the company, while external auditors are appointed by a shareholder vote.
• Internal auditors will examine issues related to company business practices and risks, processes, and others based on the audit criteria while external auditors examine the financial records and issue an opinion regarding the financial statements of the company. 

internal auditor is more on monitoring and evaluating how well the risk being managed. its more on improving the system and the process. external auditor is inspecting the clients record and expenses as to whether  the F/S presented fairly in accordance with GAAP if IFRS 

Internal auditors maintain controls and they work as permanent employee of company. 

 

External auditors check the financial of company and highlight if they did not treat any item by IAS and IFRS. Thanks

There is a significant discrepancy between the work of the External Auditor and the work of the Internal Auditor as follows: - The main objective of the external auditor is to serve the shareholders of the company by way of the opinion about the safety of preparing the financial reports prepared by the company and they appear fairly in all the essential aspects and there are no errors or fraud within the sample examination to complete the audit of those lists, the internal auditor's main objective Is to ensure the integrity of the accounting system of the company and accuracy of data extracted and also has a leading role in preventing errors or fraud about the policies and regulations and systems approved to work for the company. The work of the External Auditor shall be carried out by an independent professional person accredited by the competent authorities to carry out the work of auditing and auditing the accounts and shall be appointed by the shareholders at the ordinary general meeting of the company. The internal auditor shall work with the company and shall be appointed by the executive management of the company.  - In terms of independence of the work, the external auditor is independent in the performance of work on the management of the company and the process of checking the lists and evaluating the work and opinion after the completion of the examination either the internal auditor has limited independence from some departments such as financial management and cost management and production management and marketing and does not enjoy Thus achieving independence with the company's executive management. - The External Auditor is accountable to the majority of shareholders for what is stated in his report prepared for the audit and examination of the financial statements. The internal auditor is responsible only to senior management and presents the results of examination and study and ways to avoid shortcomings.   - The External Auditor shall work periodically during the reporting year and after the final reports and financial statements have been prepared for auditing. The internal auditor shall work on a regular daily basis throughout the year without waiting for the completion of the financial statements.

Internal auditors can be employed by the business or outsourced. External auditors are from an outside firm. Internal Auditor & External Auditors have mutual interest regarding the implementation of the effective system & financial Controls.  The role of internal auditing is determined by management, and its objectives differ from those of the external auditor. The internal audit function’s objectives vary according to management’s requirements. The external auditor’s main concern is whether the financial statements are realistic & free of misstatements. The external auditor should have a sufficient understanding of internal audit activities to identify and assess the risks of material misstatement of the financial statements and to design and perform further audit procedures. The external auditor should perform an assessment of the internal audit function when internal auditing is relevant to the external auditor’s risk assessments. Liaison with internal auditing is more effective when meetings are held at appropriate intervals during the period. The external auditor would need to be advised of and have access to relevant internal auditing reports and be kept informed of any significant matter that comes to the internal auditor’s attention which may affect the work of the external auditor. Similarly, the external auditor would ordinarily inform the internal auditor of any significant matters which may affect internal auditing.

There are too many difference between Internal & External Auditor but I would like focus more on the objective part of these two Auditors :

Internal Auditor : The objective of this auditors is not limited to validating the income statement and position statement. There are various roles played by the Internal Auditor like Risk (analysis, control, management) various process audit ( P2P, O2C, R2R, Paryroll, Hire to Retire or any other as decided by the Management or Audit committee of the organization.). Their Scope of work is decided by the Audit Committee / Management but they follow the procedure and Standards of their Governing Statutory body. To some extent we can say that they are auditor of Performance Governance.

External Auditor : They are the final authority to provide their opinion on the Financial statement of the organization, they work as per the scope of their Respective Statutory Body. Apart from this they are the Auditors of Conformance Governance,

Similarity : 

Internal Auditors are the Supplement to the External Auditor. If the Internal Auditors function are pervasiv to the organzation and led Storng Internal Control then External Auditors Audit risk will minimise and if Internal control is weak, External Auditor risk will increase.

Thanks

 

I totally agree with Lemuel , I can add under the differences : 

 

1- External auditor has more indendence than internal auditor because he is appointed from another company by the owners/ stockholders of the company.

 

2- Sometimes external auditors assess the objectitivity and independence of enternal auditor if it is requested by the company owners.

 

 

 

They relate or cordinate together by the followings :

 

1- External auditors uses the reports of the internal auditors to understand the organization better.

 

2-  External auditors can use internal auditors to assisst them while doing the analysis of the documents (after examining their indepence and compatence)

 

3- Internal auditors normaly doing the follow up of the external auditor's final report with the concerned units.

 

Internal auditors: 1- company employees 2- asses controls and maintains control systems of company 3- Facilitates External audit some time not necessarily 4- reports to mgt of company 5- no statutory requirement for them External auditors 1- not employees but hired by shareholders as well also to fulfill CODES OF CORPORATE GOVERNANCE (Specially if company is going for listing) 2- reports to shareholders not mgt 3- statutory requirement for almost all companies specially listed companies 4- Their main duty is not highlight errors and frauds but to give report on companies truthnes and fairness. 5- have compulsory frame work to follow (ISAs)