Thursday, August 9, 2012

Internal Auditor Vs External Auditor-Role,Scope,Reporting & Status

Internal

External

Role

Internal auditor assists in the achievement of organizational objectives by ensuring sound system of internal controls.

External auditor gives opinion on financial performance to shareholders to reduce Agency Problem.

Scope

Precise scope internal audit is determined by senior management.

External auditor gives opinion regarding true and fair view of the financial statements.

In jurisdictions, where rules based approach to corporate governance is applicable. External auditor also reports on assessment of board of directors on effectiveness of internal controls.

Organizational status

Internal auditor is an employee of the organization.

Internal auditor is recruited by directors.

External auditor is an Independent person or firm outside the organization.

External auditor is recruited by shareholders.

Reporting

(Please note that to be independent internal auditor should not report to CFO or finance director on his findings)

Internal auditor reports to audit committee and board of directors on the effectiveness of internal control and risk management system.

External auditor reports to shareholder in the annual report in the form of standard audit report.