Regardless of size, every company needs to ensure they have accurate financial records and its operations are in good working order. This is where audits come into play. Audits provide companies with transparency, a reduction of fraud risk, and compliance with legal requirements. However, audits are not all the same. Some of the typical audits include internal audits and external audits.
In this blog, we highlight the differences between Internal vs External Audit, when and why audits are performed, who performs audits, and the assistance that it brings to the business.
What is an Internal Audit?
An internal audit is like a regular check-up that a company does on itself. It is usually conducted by the company’s own employees or an internal audit team. Their job is to make sure the business is following its own rules and improving its processes.
Purpose of Internal Audits
- To find mistakes or weak areas in company operations
- To suggest improvements in internal controls
- To reduce risks like fraud or waste
- To make the company more efficient
Internal auditors check everything from how the company spends money to whether departments are following company policies. These audits can happen anytime during the year.
What is an External Audit?
An external audit is done by someone outside the company, usually a certified accounting firm. It’s often required by law, especially for public companies, and happens once a year.
Purpose of External Audits
- To check if the company’s financial statements are true and fair
- To make sure the company is following legal and tax rules
- To build trust with investors, banks, and government agencies
External auditors are completely independent. They look at the company’s financial records, bank statements, and transactions to see if everything adds up.
Internal vs External Audit: Key Differences
Let’s break down the main differences between internal vs external audit in simple terms:
| Feature | Internal Audit | External Audit |
| Who Performs It? | Company’s own team | Independent auditors |
| Main Goal | Improve processes and reduce risks | Check financial statements accuracy |
| Reports To | Company’s management | Company’s stakeholders or shareholders |
| When It Happens | Throughout the year | Usually once a year |
| Focus Area | Internal controls, operations, risk | Financial statements, legal compliance |
| Regulated By | Company policies | Government or regulatory bodies |
As you can see, both audits are important, but they serve different purposes and answer to different people.
Audit Procedures: What’s Involved?
Audit procedures are the steps that auditors take during their examination. Though both internal and external audits follow different goals, they share some common procedures, such as:
- Planning – Understanding what needs to be audited
- Risk Assessment – Identifying areas that are most likely to have errors or fraud
- Testing – Checking documents, records, and systems
- Reporting – Sharing findings with management or stakeholders
For internal audits, these steps are more focused on how the business operates, whereas in external audits, the focus is on verifying numbers and ensuring compliance with accounting standards.
Why Audits Matter
Audits are not just a formality; they protect the business. They help verify that money is being handled correctly and that the rules are followed. Internal audits help management make better decisions, and external audits enhance the confidence of outside parties that the business can be trusted.
Both types of audits also help reduce the chances of fraud or serious errors. They can spot problems early and help fix them before they become costly.
Who Should Learn About Audits?
If you’re planning a career in accounting, finance, or business management, it’s important to understand both types of audits. Enrolling in finance training programs will help you gain the skills to perform or understand audit procedures.
These courses often cover:
- How to conduct internal audits
- The rules and standards for external audits
- Financial reporting and analysis
- Risk management and compliance
Whether you’re a student or a working professional, these skills are valuable and in high demand.
Final Thoughts
Knowing the difference between internal and external audits is vital for anyone working in business and finance. While both are intended to keep the company moving in the right direction, they have different scopes and reporting responsibilities.
Internal audits help companies evolve internally, while external audits provide assurance to an external party. Together, they ensure companies operate correctly and legally, thereby retaining confidence.
If your goal is to advance your career in finance, consider taking accounting and tax courses that include an overview of audits and relevant regulations. It is a smart move towards becoming a trustworthy financial professional.