Internal vs. External Auditors, What’s the Difference?
Working in the auditing industry leads to many different career opportunities. Auditing roles usually fall into two camps though, internal and external, and it’s important to understand these implicitly before looking too closely at specialisms or niches.
Internal vs. External
Internal auditors work within an organisation and report to its audit committee and/or directors. They help to design the company’s organising systems and help develop specific risk management policies. They also ensure that all policies implemented for risk management are operating effectively. The work of the internal auditor tends to be continuous and based on the internal control systems of a business of any size.
External auditors are independent of the organisation they are auditing. They report to the company’s shareholders. They provide their experienced opinion on the truthfulness of the company’s financial statements and perform work on a test basis to monitor systems in place.
There are three key differences in the activities of internal and external auditors. Each is discussed in depth below:
External auditors are appointed by the shareholders of a company, although this usually comes through discussion with directors. External auditors must be appointed from a different company independent of their own whilst internal auditors are usually employees of the organisation. Keeping clients happy as an external auditor is often more difficult than internally as you already know those around you in the second instance.
The objectives for an external auditor are usually defined by statute whilst management will set the objectives for internal audits. External auditors generally have free reign to examine and assess every aspect of the system whilst management can pinpoint and highlight certain areas they want internal auditors to focus on. There are various types of internal audit.
External auditors are responsible to the owners of the company which could be anybody from its owners to the shareholders to the government or general public. Internal auditors are responsible solely to the company’s senior management.
A Closer Look
An internal audit is designed to look at the key risks facing the business and how the business is managing those risks effectively. It usually results in recommendations for improvement across departments. Both financial and non-financial elements are usually included and the company’s reputation may be a factor which is assessed.
An external audit focuses on finance and the key risks associated with the business’ financial business. They are usually performed on at least an annual basis to provide the annual statutory audit of the financial accounts. This audit is designed to show whether the accounts are a true and fair reflection of where the company sits financially. External auditors will evaluate all the internal controls put in place to manage financial risk to assess whether they’re working effectively.
Working in the auditing sector is always challenging and whether you work as an external or internal auditor you will face plenty of career challenges. Many people opt to work in internal roles to have the camaraderie and rapport of working with a single company whilst others enjoy the variety of work they come across in an external role where every day is different.