Internal Auditor vs External Auditor

Aspect	Internal Auditing	External Auditing
Primary objective	Improve internal controls, risk management, and operations	Provide independent opinion on whether financial statements are true & fair
Main stakeholders	Management & Board (Audit Committee)	Shareholders, regulators, creditors, public
Independence	Organisationally independent but employed/engaged by the company; reports to Audit Committee	Professionally independent; external firm appointed by shareholders
Appointment	By management/Audit Committee	By shareholders at AGM (per law)
Reporting line	To Audit Committee/Board; management for administration	To shareholders via audit report
Scope	Broad: governance, risk, compliance, operational efficiency, IT, projects	Financial statements and related disclosures (with some controls/testing relevant to FS audit)
Standards/frameworks	IIA Standards (IPPF), internal methodologies	ISA (International Standards on Auditing) and local regulations
Frequency	Continuous/periodic per annual audit plan	Typically annual (or as required)
Time orientation	Forward-looking and preventive; advisory	Historic, after period-end; assurance
Nature of work	Assurance and consulting (advisory)	Assurance only (reasonable assurance)
Evidence focus	Control design & operating effectiveness, process performance	Audit evidence supporting account balances, classes of transactions, disclosures
Materiality	Often process/control risk–based; not strictly quantitative	Quantitatively and qualitatively determined for FS misstatement
Deliverables	Internal audit reports with findings, ratings, and recommendations	Independent auditor’s report with opinion (unmodified/modified)
Access & confidentiality	Full access granted by management; results usually internal	Access per engagement; report is public/for members; working papers confidential
Legal requirement	Not always mandatory; governance best practice	Often required by law/regulation unless exempt
Success metrics	Control improvements, issue remediation, value creation	Appropriate opinion, audit quality, compliance with standards
Typical activities	Risk assessments, control testing, compliance reviews, operational audits, IT audits, investigations	Risk assessment, substantive testing, controls testing relevant to FS, analytical procedures
Relationship with management	Collaborative—but must preserve independence	Professional scepticism; arm’s-length relationship
Remuneration	Company-funded (budget approved by Audit Committee)	Audit fee approved by shareholders/Board (per governance)

Shorter version

Point	External Audit	Internal Audit
Objective	Give opinion on true & fair financial statements	Improve internal control, risk, compliance, efficiency
Who they report to	Shareholders	Audit Committee / management
Who appoints	Shareholders	Company management / Board
Independence	Independent outsider	Employee/contractor of the company (in-house)
Scope	Financial statements	All operations (finance + non-finance)
Frequency	Usually annual	Continuous / ongoing
Output	Audit report with audit opinion	Internal audit report with recommendations