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Internal Audit vs. External Audit

Internal Audit vs. External Audit: Understanding the Difference

When it comes to auditing, it’s important to understand the difference between internal and external audits. These two types of audits serve different purposes and are carried out by different parties.

We’ll explain what internal and external audits are and highlight the key differences between the two.

What Is An Internal Audit?

An internal audit is an internal evaluation of an organization's operations and financial records. This type of audit is carried out by an employee or department within the organization.

The primary objective of an internal audit is to identify areas for improvement and to ensure that the organization's internal controls are functioning effectively.

Who Carries Out An Internal Audit?

 An internal audit is typically carried out by an internal audit department or by individual employees who have been trained in auditing techniques.

The internal audit department is responsible for evaluating the organization's operations, financial controls, and compliance with relevant regulations.

Why Are Internal Audits Important and Why Do Companies Need Them?

Internal audits are important because they help organizations identify areas for improvement and ensure that their internal controls are functioning effectively.

By conducting regular internal audits, organizations can identify and address potential problems before they become significant issues.

Internal audits also help organizations identify areas where they can improve processes, such as the financial close.

This helps to improve the overall efficiency and effectiveness of the organization.

What Is An External Audit?

An external audit is an independent examination of an organization's financial records and operations. This type of audit is carried out by a third-party auditor who is not affiliated with the organization being audited.

The primary objective of an external audit is to provide an opinion on the accuracy of an organization's financial statements and to ensure that they are in compliance with relevant accounting standards.

Who Performs the External Audit?

External audits are typically performed by an independent accounting firm.

The auditor must be independent so they can provide an unbiased opinion on the financial statements. This independence is crucial to ensure the reliability and credibility of the audit results. 

According to the PCAOB,“to be independent, the auditor must be intellectually honest; to be recognized as independent, he must be free from any obligation to or interest in the client, its management, or its owners.”

Who Hires External Auditors?

 External auditors are typically hired by the organization's board of directors. The board of directors often delegates the hiring responsibility to the audit committee.

In some cases, external auditors may also be hired by investors, regulators, or other stakeholders who want to ensure the integrity of the financial information provided by the organization.


What Are The Differences Between External and Internal Audits?

The main differences between an external and internal audit are who carries out the audit and the objective of the audit.

External audits are carried out by independent third-party auditors and are primarily focused on the accuracy of the financial statements.

Internal audits are carried out by employees or departments within the organization and are focused on ensuring that internal controls are functioning effectively and improving the organization's operational effectiveness.

Can An External Auditor Perform Internal Audits?

Yes, an external auditor can perform audits normally performed by internal audit teams, but it is typically not their primary role.

External auditors are mainly responsible for providing an opinion on the accuracy of the financial statements.

Independent Auditor vs. External Auditor: Are They The Same?

Yes, the terms "independent auditor" and "external auditor" are often used interchangeably.

Both refer to an auditor who is not affiliated with the organization being audited and who provides an unbiased opinion on the financial statements.

Audit Ready Controls with BlackLine

Companies come to BlackLine because their traditional manual accounting processes are not sustainable.

Our cloud-based financial operations management platform and market-leading customer service help companies move to modern accounting by unifying their data and processes, automating repetitive work, and driving accountability through visibility. 

With preventative and detective controls integrated across the BlackLine platform, organizations can streamline their audit processes and improve their overall audit readiness.

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