Difference between Internal and External Auditor

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.

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.