30th Oct, 2020
External and internal auditors can audit financial statements. An audit of financial statement is the examination of different entities of financial statements and their disclosures. Both external and internal auditors can audit financial statements in order to add credibility to report the exact financial position and efficiency level of an organization.
The primary role of internal and external auditors differs due to their functions and the responsibilities held in the organization. Let us look at difference between these two:
Internal auditors are the employees of company who check the financial statements of the company and to check is there any credibility issues or not. They are responsible for the financial management of the company. They perform various reviews so that exact credibility could be ensured, either everything is going perfect or there is a chance mistakes on the financial statement needs to be investigated and corrected, and they usually provide the exact information to the board of directors about accuracy of financial statements.
On the other hand, external auditors are those persons who are outside of organisation, and not an employee, who focus on the finer auditing of the financial statements. Their purpose is to make sure that there is not any type of mistake in the financial statements. They usually responsible for providing opinions which are independent of the organisation. They give opinion about the integrity of organisation in a way that determines where is there any type of error or not.
If any mistakes or errors are found in the financial statement, then it is the responsibility of the external auditor to make amendments so that there exists correct and accurate information in the financial statements of that organisation.
Shareholders give a vote about hiring the external auditor and it is up to this vote that either an auditor should be hired or not. If appointed they properly examines the financial records of the business and then give their opinion on it.
Firstly, financial reports are audited by internal auditor and correction are made if any type of error in the financial statements exists. Then, the external auditor will audit those financial statements, already audited by the internal auditor, so that 100% accuracy could be maintained and disclosed.
An annual audit is conducted by the external auditor so that financial statements’ accuracy could be assured in an efficient way. Any and all problems that are flagged which are related to business practices are examined and rectified by the auditors’ i.e. internal and external auditors.
Sometimes, there exists certain issues or risks among the business practices which can harm the business. These issues or risks can create a bad impact on the financial statements and there is a great need to these are rectified with the help of internal and external auditors.
Therefore, there is a great need for organisations to conduct audits in order to enhance the credibility and integrity of the business and to ensure the business performs profitability.