Internal and external audits serve different purposes and have different objectives, so there are some key differences between the two. Some of the most significant differences include:
- Purpose: The primary purpose of internal audits is to provide assurance to the management and the board of directors that the company’s internal controls, financial reporting, and operations are in compliance with company policies, laws, and regulations. The primary purpose of external audits is to provide assurance to external stakeholders, such as investors, creditors, and regulators, that the company’s financial statements are accurate, reliable, and compliant with accounting standards.
- Scope: Internal audits tend to have a wider scope, covering all aspects of the company’s operations, including financial reporting, internal controls, governance, risk management, and compliance with laws and regulations. External audits, on the other hand, typically focus on the accuracy and fairness of the company’s financial statements and the company’s compliance with accounting standards.
- Independence: Internal auditors are employees of the company and therefore are not considered independent. External auditors are independent from the company being audited and are hired by the company to provide an independent opinion on its financial statements.
- Reporting: Internal audits usually provide recommendations to management for improving internal controls and operations, whereas external audits provide a formal opinion on the accuracy and fairness of the company’s financial statements.
Overall, both internal and external audits are important components of a company’s overall risk management and control processes, and they complement each other by providing different perspectives on the company’s financial reporting and operations.