Function of Internal and External Auditors

Role of internal auditors

Internal auditors focus on ensuring that the systems and processes of an organisation are working well. Internal auditors act as consultants to the organisation providing assurance on the organisations risk management governance and internal control processes.

Internal auditors have to be independent from the organisations they evaluate and report to the highest level in an organisation, the senior managers and governors.

The process of internal auditing normally consists of:

  • Research – Researched is gathered on a range of information to enable the review of a business in a particular section. Eg what activities occur?
  • Planning – Involves determining and discussing the priorities and objectives after the review with managers.  Eg Setting targets, outputs and deadlines.
  • Providing Assurance
  • Action

Role of external auditors

External auditors concern themselves with examining annual reports of an organisation that it has no involvement with. Emphasis is on the external auditor not playing any part in the daily operations of the organisation.

Unlike internal auditors, external auditors express their opinions on whether the information presented in financial statements, reflect those in the financial position at any date in time. For example, are the details of the organisations income and liabilities properly recorded in the income statement.

In a case were the external auditor identifies a significant issue with the accounts, they will provide the managers in the company with an “audit management letter” which records any issues and how they should be resolved. External auditors are important towards promoting confidence and trust in financial information.

The key differences between these two types of auditors are:

Internal Auditor External Auditor 
Helps as a measure of comparison in a scheme of merger through measuring the asset backing. Inspect the financial accounts.
Audit role is much broader (eg They might have to consider the strategic risk involved in implementing a new product).