The difference between external and internal audits is that an external audit is a financial audit based on financial reports or statements, and is most often performed by accountants from outside the organization. In contrast, an internal audit is an independent, objective examination of how an organization operates. It includes observing, measuring, or analyzing an organization’s:
- Culture
- Internal controls
- Information systems
- Procedures
- Outputs
Internal auditors make sure an organization operates effectively. They collect and study data about the way the organization is managed to assess how well it self-governs. They:
- Identify risk areas and manage or reduce risk exposure
- Use current structures to ensure the organization is performing up to established standards
- Identify, report, monitor, and follow internal policies and procedures
- Ensure the organization complies with legislation and regulations
- Ensure the organization protects its own assets
- Participate in identifying and lowering the risks from fraud
Internal auditors also:
- Suggest opportunities to improve operational effectiveness
- Recommend ways to improve the design and effectiveness of controls
- Make sure the right controls are in place to manage or mitigate identified risks
- Report findings and related action plans to management
- Recommend ways to improve
- Provide fraud awareness training
Internal auditors conduct audits before introducing new systems. They ensure new systems work as planned and older systems work as well as before, or better. They may advise systems project teams about risks and control-related issues. Some internal auditors hold coaching sessions with staff to improve operational effectiveness or reduce risk.
Some organizations lack the specialized expertise to perform internal audits. They may enter outsourcing or co-sourcing arrangements to have outside auditors perform their internal audits.