Q.  What are the differences between external and internal audit?

A.  An external audit is an exercise whose objective is to enable the auditor to form an opinion on whether the financial statements of an entity give a true and fair view (INT = present fairly in all material respects) of the state of the entity’s affairs.  Auditors will use International Standards on Auditing (ISAs) as the framework for the audit in ensuring the financial statements have been prepared in accordance with legal and regulatory requirements.  External audit is primarily focussed on the financial statements.

Internal audit is largely focussed on the operations of the entire entity.  It’s primary objective is to add value and improve an organisations operations.  Internal auditors generally report to the board of directors or others who are charged with governance, such as an audit committee.  In contrast, the external auditors will report directly to the shareholders of the entity.

Another notable difference between internal and external auditors are that internal auditors are very often the employees of the entity (though in a lot of instances, the internal audit function is often outsourced).  External auditors can never be employees of an entity as they have to be independent of the company and its management.

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