Internal and External Audits

Internal vs. External Audits: What’s the Difference?

Do you know the difference between internal and external audits? For companies, audits are crucial to ensure compliance with regulations, improve operations, and uphold accountability. However, the terms ‘internal’ and ‘external’ audits can be confusing for many. This blog post aims to clear the air and provide you with insights into choosing the right type of audit for your organization.

Internal Audits

An internal audit is conducted by a company’s own employees or an outsourced third-party audit team. Internal audits serve as a proactive measure to identify gaps and deficiencies in operations, policies, and systems. Organizations designate an independent and unbiased team to conduct this audit to ensure impartiality in identifying and addressing risks.

An internal audit is aimed at improving the organization’s operations and increasing efficiency. Internal auditors review every aspect of an organization’s operations, including its financial reporting procedures, internal accounting controls, internal policies, compliance with regulatory and legal requirements, and so on.

Internal and External Audits

External Audits

In contrast to internal audits, external audits are performed by independent organizations, such as external accounting firms. External auditors are hired to review an organization’s financial statements and internal controls to provide assurance to stakeholders, such as shareholders, lenders, and other investors. The primary focus of an external audit is to ensure compliance with the required regulatory and legal requirements.

External audits are more formal than internal audits, and they follow the standards set by regulatory authorities like the Financial Accounting Standards Board (FASB) and the Public Company Accounting Oversight Board (PCAOB). External audits aim to provide an unbiased opinion on a company’s financial statements, internal controls, and accounting practices.

Pros and Cons of Internal vs. External Audits

An internal audit is performed by the organization’s own staff, who are familiar with its operations and policies. Internal audits provide more flexibility than external audits and can create more opportunities for the improvement of operations. However, internal audits may sometimes lack objectivity and independence since the audit team is selected by the organization.

External audits are conducted by independent professionals and provide an unbiased view of an organization’s financial statements and compliance with regulations. Choosing an external audit gives assurance to stakeholders, including shareholders, and lenders, that the financial statements are accurate and complete. However, external audits can be expensive and may cause disruptions to day-to-day operations.


In conclusion, both internal and external audits play an essential role in organizations. Choosing the right type of audit depends on the organization’s goals, regulatory requirements, and compliance obligations. While internal audits help identify operational gaps and inefficiencies, external audits provide assurance and validate the organization’s financial statements. Hence, it is imperative for companies to understand the difference between the two types of audits, their scopes and benefits, and the costs associated with each type to make an informed decision on which type of audit is best suited for their organization. It is also essential to ensure that the audit process is transparent, objective, and comprehensive. With this knowledge, companies can improve their accountability, mitigate risks, and enhance overall organizational effectiveness. Need a hand with your internal audits? HKMP’s expert team here is ready to provide stellar assistance – book a Free Consultation today and get the help you need.