The Differences Between Internal And External Auditors Accounting Essay


The statue of internal and external auditors in company is different. Internal auditor is integrated to the trade company or an external specialized company or in other words is an employee to the company. However external auditor only integrated to external specialized company and is an independent person.

Besides, internal and external auditor also differs in goal and auditing procedure. For internal auditor, they monitor the management and check of the legal compliance of the financial statement. They also make appropriate recommendation for the improvement governance process. For external auditor, they identify and certify the financial statement. Besides, they also evaluate the internal control system but this is only valid for financial accounting elements.

Next, the scope of the audit is different as well. The scope of internal auditor is large which can cover the whole company's function. But for external auditor, the scope is focuses on verification the issues that determine the financial standing and company's performance.

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Moreover, the working period of audit is also different. For internal auditor, they can have permanent activity within the trade companies which is according to the article of association. For external auditor, the targets are fitfully organized and at suitable moments for the certification of accounts.

There is difference between internal and external auditor in term of their independence. Internal auditor is relatively independence. But in other case, if the internal auditing is performed by a third company, they have the independence specific to the freelancers. For external auditor, they are independent to its client as representative of a free profession and regulated legally and statutory.

Furthermore, internal and external auditor also apply different auditing standard. Internal auditors may follow GAAS standard and sometimes they may follow IIA standard or they may not follow any other special standard. However, external auditors are required to follow generally accepted auditing standards or international auditing standards, but internal auditors do not.

Guidance make by internal auditor is different with external auditor as well. Internal auditor will give suggestion to the management for the improvement of business whereas external auditor does not need to provide suggestion unless he was asked.

Besides they also have different duties. Internal auditor primary duty is to find frauds and errors whereas external auditor has to determine the final accounts on whether it was true. If company found any mistake made by internal auditor, they can be removed by management. For external auditor, they can be removed by shareholders.

Financial statements were made by companies. Investors, creditors and bankers can make use of the company's financial statements to make their operating decision. Auditing exists in order to make user trust on these financial statement, identify the faithfulness of financial statement, and help the user make final decision.

The users cannot review and identify each account in the financial statements by themselves although the users have to depend on the financial statements to make their decisions. Users depend on financial statements so much. But they would not have enough abilities and competence to do so even if they could do so. These financial statements are audited by independent and intelligent accountants or CPAs. Auditors will periodically examine each account in the financial statements for the application of users.

For example, auditors will deliver a formal mail to the banks to check the balances of cash or asset and note payable or liability account. Besides, they will also send a mail to the suppliers and customers of companies to examine the balance of accounts receivable and accounts payable. In short, auditors are the user's representatives to examine the financial statements of reports. The users cannot determine whether the financial statements are faithful and reliable to express their financial position and performance if without auditing.

Auditors should provide with enough accounting, and others related knowledge. When there are new laws and regulations, they have to accept related training and motivation. Auditors should have the character of honest, upright, and independent. They cannot be influenced by the others in the companies. Besides, auditors also must have enough abilities and competence. There will have an exam held periodically to test whether accountants have enough related knowledge. Therefore, we can have a high standard of auditors.

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The cost of auditing depends on the company's net income. The cost of auditing may also increase if sales incurred in a company grow up continuously and vice-versa. The cost of auditing is high, but we can have a high standard and demand for our auditors. Therefore, a company is willing to pay for this costly expertise.

We can fully refer to their opinions in the financial statements because the auditors are trustable and reliable. Referring to their opinions, we can know whether companies overstate or understate their asset and liabilities and whether their statements are faithful. With their opinions, we can decide whether to depend on these financial statements to make our decisions. If the results of financial statements are trustable, this means the company did not overstate or understate their accounts. Therefore, we can use its financial statements to make our decision.