Internal auditor is person employed by organization to help organization monitor internal control, manage and control risk and evaluating governance processes. External auditor in other hand is a person independent of the organization who has been hired by owners of the organization to give assurance on the organization financial statement by giving his opinion through audit report. Internal and external auditor are both engaged to provide assurance on various aspects of organization and both must follow professional standards in doing so, however there is number of fundamental difference between them.
The following are difference between internal and external auditors
- Role and work:
The role of external auditor is to express an opinion on the truth and fairness of the annual financial statements While the role and work of internal auditors is to examine Systems and control and assess risk in order to make recommendations to management for improvements
- Qualification to act
Qualification of external auditors are set out by statute. This ensure that the external auditor is independent of the entity and suitably qualified. On other hand there is no statutory requirements on the qualification of internal auditors. Management select a suitably competent person to cut as internal auditor.
External auditors are appointed by shareholders to ensure independence from management while internal auditors are employed by management in accordance with entity’s condition of service and may not claim total independence from management.
- Responsibility for fraud:
External auditors has no primary responsibility for discovery of fraud and errors other than to report the truth and fairness of financial statements. On the other hand the internal auditors maybe given specific responsibilities for investigating suspected fraud or errors by management on those charged with governance or the audit committee
- Reporting line
External auditors reports to share holders or member at the annual general meeting while internal auditors reports to the highest level of management or Those charged with governance and even the audit committee.
- Who determine the duties
The duties of external auditors are set by Statutes and the external auditor may not vary the scope while the duties of internal auditors are set out by management who approves the scope of duties