Internal audit:
It means a continuous critical review of financial and operating matter of a business. In other words it means the audit of a business conducted by the business itself for a continuous basis. It is done by that internal staff appointed particularly for the audit purposes these are called internal auditors.
External audit:
If an independent auditor examine the books and records of the company on behalf of the shareholders it is called external audit. While auditor is called statutory auditor or external auditor.
In case of accounting matter both the auditor work largely in the same field. They have common interests in finding the error and detecting the fraud. Both want to know the correct and true financial statements.
Important differences between these two.
1. Appointment:
Internal auditors are appointed or nominated by the management of the company while the external auditor is appointed by the shareholders of the company.
2. Legal position:
Legally internal audit is not compulsory where as external auditor is compulsory.
3. Status of auditor:
Internal auditor is in employee of the company while the external auditor is an independent person.
4. Qualification:
For the internal auditor any specific qualification compulsory where as for the external auditor specific qualification is compulsory.
5. Submission of report:
Internal auditor has not to submit any report where as the external auditor submits report to the shareholder.
6. Remuneration:
Internal auditor rumination is fixed by the management of the company where as the remuneration of the external auditors is fixed by the shareholders of the company.
7. Nature of remuneration:
Internal auditor’s receives salary while the external auditors receives audits fee.
8. Nature of checking:
Internal auditors checks all truncation where as the external auditor may apply test checks.
9. Right if attending meeting:
Internal auditors has no right to attend the meetings of the company’s shareholders where as the external auditor has a right to attend and meeting.
10. Kind of audit:
Internal audit is a form of continuous audit while external audit is conducted after the preparation of the final account.
11. Guidance:
Internal auditor gives suggestions or hints to the management for the betterment of the business while the external auditor has no need to give suggestion unless he is asked.
12. Duties:
Internal auditor’s primary duty is to find the frauds and errors while external auditors have to report about final accounts whether these are true or false.
13. Removal:
Internal auditor can be take away by the management where as external auditor can be removed by the share holders.
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