What is the Difference Between Internal and External Auditors of a Company?

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What is the Difference Between Internal and External Auditors of a Company?

Auditing the financial records is like a checkup of your financial statements. In this process, the income, expenses, assets and liabilities are checked by auditors. They saw your organisation's financial statements and check whether it is accurate or not. 

Two types of auditors check the financial statements: internal auditors and external auditors. In the article, we shared differences between the Internal and External Auditors of a company, how they work, benefits and drawbacks. However, there are some other types of audits as well for companies.

Internal Auditors

The internal audit is a financial audit within your organisation. In this process, the internal controls, processes and risks are checked by a team within an organisation. They continuously monitor your system for vulnerabilities and recommend improvements. 

Large organisations such as Private Limited Companies with complex operations can benefit from this internal process. These audits help show the transparency and accountability of the company. This is done by aligning with strong corporate governance practices.

Why are Internal Audits Important?

• In audits, the identification of problems gets done early. So, it saves the company from financial losses and damage to its reputation.
• Audit recommendations can help you with cost savings and better performance.
• It ensures that the company adheres to relevant laws and regulations, and avoids legal hassles.
• A right and effective internal audit system will show the company's commitment to transparency, attracting investors.

What Internal Auditors Do?

The internal auditors are part of an organisation and they have a broader skill set beyond accounting. For example, IT or operations knowledge. The auditors check the compliance, risk and prospects. They evaluate the documents and important data of the company to find issues like non-compliance with the regulations, data inaccuracies and employee theft.

The auditors work in multiple industries such as healthcare, technology, education, government, etc. They use their knowledge of company rules and policies, laws, and industry regulations, and detect the possible issues of non-compliance, misuse of funds, and other issues related to business.

Some of the responsibilities of internal auditors are examining the financial records, analyzing compliance, managing risks, and detecting fraud and theft.

External Auditors

The external audit of a company’s financial records is an independent examination conducted by a third-party auditor. All the listed companies on a stock exchange must have their financial statements audited by an independent auditor. However, companies that exceed some targets of turnover, share capital or public deposits must audit their accounts. 

An external audit is required to check the business's internal controls and potential financial risks. To check the financial records, the auditor checks transactions, reviews supporting documents, and confirms balances.

Regulations for External Auditors

• The Institute of Chartered Accountants of India (ICAI) is the national regulator for setting the standards for external audits.
• The Ministry of Corporate Affairs (MCA) regulates external audits through the Companies Act, 2013.

The process of auditing helps in identifying potential errors or frauds. However, the recommendation provided by an auditor can help companies in improving internal controls and financial reporting systems.

Difference Between Internal Auditors and External Auditors

The following are the points of difference between the internal auditor of company and external auditor of company:

Conclusion

To conclude, internal audits and external audits have their pros and cons. For instance, the internal auditors can conduct the surprise audits but the external audits are always planned. However, external audits are usually required for large private companies, on the other hand, the internal audit is optional for most of the companies. If you are looking for an auditor for your organisation, then reach out to Registrationwala for more information.

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