How do internal and external audit differ and how shoud they are relate?

The Basic Relation between the Internal and External Audit is to evaluate and check the Compliance of the Processes in an Organization as per the requirements in their Procedures, Work Instructions and as given in the Standards. Also for both Audits the Auditors should be competent to perform the audit effectively.

The differences are :

1. Usually the Internal Audits are to be bigger in Time Span then External Audit.

2. Internal Audits are performed by the Personnel from within the Organization and External Audit are by those who are not from the same Organization.

3. Internal Audit verify only the Continuity of Processes as layed down requirements of procedures as per Standard requirements and make changes in Processes as required, whereas, External Audit in-turn verifies either continuity of existing certifications or provides for new certification.

4. Sample Size selected to verify the compliance is to be more larger in Internal Audit then in External Audit.

External Auditors are required to express an opinion on the "true and fair " statement of the financial statements. An opinion required for external agencies like banks, Financial institutions , Creditors etc.

Internal Audit is concerned with providing assurance to owners, shareholders based on review of financial and operational records, compliance with laws regulations, policy and procedures. Last but not least also with effectiveness and efficiency of operations .

Internal Auditors are generally the employees of an organization. Though internal audit activity can be co sourced or out sourced by the organization. Internal auditors look into operations, processes and activities of the organization where the main purpose is to add value in the organization and improve organizations operations. Internal auditors can also act in a consulting role in various management projects so as to mitigate risks associated in those projects. They also act as a control specialist where they ensure that risks associated to each activity is under control and that

Whereas external auditors are generally considered those who audit only the financials of the organizations and their main purpose is to ensure that all the elements of the financial statement of the organization are present truly and fairly. 

The work of external auditors is reduced at the time of verifying financials if they believe that internal audit in the organization is working effectively and their work can be relied upon. In that case while reviewing financial statement elements, external auditors may reduce analytical/substantive procedures. 

Internal Audit function is prepared internal audit function or management of company and external audit or statutory audits are performed by external independent auditors. They relate in a way that external and internal audit liason of Financial statement audits.And work of external depends on internal function.Internal audit relies mostly follows company accounting policies whereas external audits depends on IFRS's and GAAP. They both should coordinate for compliance purposes

Internal audit insider in the organization not a government or ragesterd auditor  

but external is opesit in this case