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Many people wonder what the difference is between an internal and external auditor. Both of these accounting professionals are responsible for verifying that the information a business collects paints an accurate portrait of its situation by running audits. But, internal and external auditors differ in the terms of their employment, their areas of responsibility and their overall goals.
Who They Work For
While the professional efforts of both internal and external auditors ultimately protect the interests of management, investors, owners and employees, there are distinct differences in who these two professionals actually work for. Internal auditors are either employed by the company they are responsible for auditing or are consultants brought in to act as employees of the company. They report their findings to the business’ management team and work under its direction. External auditors are generally employed by independent auditing or accounting firm; some are outside consultants hired to act as external auditors. Their work is performed on behalf of a company’s owners and investors. It is often mandated by financial regulations and laws.
What Their Work Covers
According to Investopedia, internal auditors are much more than number crunchers focused on financials. These professionals are actually risk managers who are tasked with overseeing the controls on all kinds of reporting. They watch for signs of inefficiency, error or fraud in reports about the company’s finances, its supply chain, its operations, its human resources and many other areas. They may also offer recommendations to improve accuracy or security to the company’s management. External auditors are more focused on ensuring financial accuracy and proper compliance. According to The Houston Chronicle, external auditors evaluate a company’s financial statements and procedures. They review the work done by internal auditors, providing unbiased verification that all financial records are complete and accurate. This reassurance gives a business’ financial reports greater credibility in the eyes of investors and financial institutions. External auditors also check that a business is fully compliant with any appropriate financial regulations or laws, preventing headaches at tax time.
What Objective Guides Their Work
There is some overlap in the goals of internal and external auditors. Both types of professionals work to ensure that a company has an accurate picture of its financial health. But, their guiding objectives are slightly different. As employees of the company, internal auditors work to oversee the health of the company by improving efficiency, watching for potential problems and ensuring that the company’s management team has accurate information to base their decisions on. Their role is proactive. Much like lifeguards watch over busy pools to spot any sign of trouble with the goal of keeping everyone swimming safely, internal auditor actively work to keep their company’s future afloat. In contrast, external auditors’ tasks are more reactive. Like teachers grading students’ exams, they review the pertinent information and render judgment. While external auditors may point out difficulties and offer suggestions for improvement, their primary task is to assure other parties that the business being audited is following the rules and reporting its assets and liabilities accurately.
Related Resource: MBA in Accounting
They may be nerve-wracking, but audits play a critical role in protecting a company’s financial health. The difference between internal and external auditors allow these accounting professionals to approach auditing from alternate angles, providing businesses with a fuller, richer picture of their financial situation.