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Difference between Internal and External Auditor

Question: What is the difference between Internal and External auditor.


Difference between Internal and External Auditor
COMPARISON of internal and external auditor
          As a process, both the types of audit have certain features common between them. For example, the techniques of obtaining audit evidence, drawing a sample, projecting sample results and the review of accounting and internal control systems are same for both the audits. However, there are certain differences in the nature and scope of the internal and external audit. Some of the main differences have been presented in following lines.


Difference
                        Internal  Auditor
                               External Auditor
1. Objectives
Objective of internal auditor is to detect the frauds and errors but management can direct the internal auditor to perform in a particular function.
The basic objective of the external audit is to enable the auditor to express an opinion on the financial statements.
2.  Appointment
Internal auditor is appointed by the management of the organization according to the business requirement.
External auditor is appointed by the Board of Directors, shareholders or by the SECP.
3.  Statutory Requirements
Appointment of internal auditor is not a legal requirement. However, under code of Corporate Governance Ordinance 2002, appointment of internal auditor is compulsory.
It is statutory requirement that every public limited company, private limited company who is subsidiary of public limited company or whose paid-up capital is equal to three million shall appoint the external auditor in accordance with companies’ ordinance 1984.
4. Qualification
No specific qualification is required for the appointment of internal auditor. It all depends on management consent.
An external auditor must be Chartered Accountant and member of ICAP.
5. Status
Internal auditor is an employee of the company and works for continuous period of time. He is not an independent person
External auditor is not an employee of the company and works for continuous period of time. He is an independent person, who works as an agent of the organization.
6. Scope of Work
The management determines the scope of the work of internal auditor.
The scope of the work of external auditor is determined by the related work.
7. Auditing Standards
Auditing standards have been developed by the Institute of Internal Auditors, USA (IIA).
International Standard on Auditing have been developed for providing guidelines to the external auditors.
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Difference
Internal  Auditor
External Auditor
8. Report
Internal Auditors submit their report to the management of the organization.
External auditors submit their report to the shareholders.
9. Suggestions
Internal auditor provides suggestions about the weaknesses of the business to the management.
External auditor may or may not provide suggestions for business.
10. Remuneration
Remuneration of internal auditor is decided by the management of the organization known as salary.
Remuneration of external auditor is decided by the authority who appoints the external auditor known as audit fee.
11. Tenure
Internal auditor my continue his work for continuous period of time.
External auditor is appointed for one financial year.
12.  Removal of Auditor
Management has power to remove the internal auditor.
The External auditor can be removed during the period by passing a special resolution.
13. Rights, Duties & Liabilities
Rights, duties and liabilities of internal auditor are fixed by the management.
Rights, duties and liabilities of external auditor are fixed by the related laws.
14. Attendance at AGM
An internal auditor has no legal obligation to be present at statutory, annual general and extraordinary meeting.
An external auditor can attend the shareholders meeting.
15. Auditor’s Liability
For any negligence or professional misconduct the internal auditor is mainly responsible to the management of an organization who is his appointing authority.
External auditor may become liable to the management, shareholders or even to wider public like investors for any negligence and professional misconduct.
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