Internal Audit vs External Audit

Internal Audit vs External Audit

Audit alludes to a process of independent checking of financial records of an organization, so as to give an opinion on the financial statement. It can be grouped into two categories, namely, Internal Audit and External Audit. Internal Audit is not compulsory by nature but can be conducted to review the operational activities of the organization. In this type of auditing, the work area is determined by the entity’s management.

On the contrary, External Audit which is obligatory for every separate legal entity, where a third party is brought to the organization to perform the process of Audit and give its opinion on the Financial Statements of the company. Here the working scope is determined by the respective statute.

The auditing process of the two types of the audit is almost same and that is why people get confused between these two. However, there is a fine line of difference between internal audit and external audit.

BASIS FOR COMPARISON	INTERNAL AUDIT	EXTERNAL AUDIT
Meaning	Internal Audit refers to an ongoing audit function performed within an organization by a separate internal auditing department.	External Audit is an audit function performed by the independent body which is not a part of the organization.
Objective	To review the routine activities and provide suggestion for the improvement.	To analyze and verify the financial statement of the company.
Conducted by	Employees	Third Party
Auditor is appointed by	Management	Members
Users of Report	Management	Stakeholders
Opinion	Opinion is provided on the effectiveness of the operational activities of the organization.	Opinion is provided on the truthfulness and fairness of the financial statement of the company.
Scope	Decided by the management of the entity.	Decided by the statute.
Obligation	No, it is voluntary	Yes, according to Indian Companies Act, 1956.
Period	Continuous Process	Once in a year
Checks	Operational Efficiency	Accuracy and Validity of Financial Statement