Internal Audit – The periodic checking of the accounts of an institution or a company from time to time by its internal auditors is called Internal Audit. This implies that the accounts are examined by a person who is on the staff of the company or the institution. An internal auditor functions move like an accountant rather than an auditor, and many organisation have such auditors on their staff because they want that there should be no errors or frauds in their books of accounts.
An internal auditor gets a salary like any member of the staff and need not necessarily be a Chartered Accountant. The internal auditor examines only the accounts of the employer and need not submit any report.
External Audit – External audit is the inspection of the books of accounts of an organisation by an independent and qualified Chartered Accountant or Certified Auditor. The auditor is not related personally in any manner to the organisation and is free to define the procedures and work independently, and is paid a pre-determined fee for his services.
External auditors conduct the audits of many organisations at a time and give their reports to the concerned managements. External audit can be related to the scrutiny of accounts for a specific period or to examining the final accounts of the financial year. Such audit is also termed as “Independent Audit’.
Difference Between Internal And External Audit
| Sr. No. | Basis | Internal Audit | External Audit |
| 1 | Qualification Of Auditor | Any person who has a knowledge of Accountancy can function as an Internal Auditor. | Only a Chartered Accountant or Certified Auditor can function as an External Auditor. |
| 2 | Appointment | The auditor is appointed by the management as an employee, and can only work for the organisation employing him. | The auditor is appointed (or reappointed) every year by the management, and is fee to work for other organisations. |
| 3 | Objective | The objective is to eliminate the in accuracies in accounts and stream line the accounting procedures. | The objective is to get the accounts examined for their relevance and correctness. |
| 4 | Freedom Of Work | The internal auditor enjoys no such freedom and has to work according to the instructions of the client. | The external auditor enjoys complete freedom of work. |
| 5 | Position | He is appointed by the management and works as per their instructions. | The external auditor is an independent and unbiased person and is free from the influence of the owners and the management. |
| 6 | Importance Of Work | The work of the internal auditor is relevant only for the owner of the business. | The work of the external auditor is important for the client, share holders, public and the government. |
| 7 | Scope | The scope of the auditor is predetermined in the case of a company and in other cases depends upon the contract. The scope of the audit cannot be altered. | The auditor gives his final report at the end of the accounting year. |
| 8 | Suggestions For Improvement | It is the duty of the internal auditor to give suggestions for improving the internal check system of the organisation apart from examining the accounts. | The external auditor is not responsible for giving suggestions about improving the method of working of the organisation. |
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