Internal Auditor (IA)

Key takeaways

• An internal auditor is a company employee who provides independent, objective evaluations of financial, operational, and compliance controls.
• Internal auditors identify weaknesses, recommend improvements, and follow up to ensure corrective actions are implemented.
• External auditors are independent third parties appointed to express an opinion to shareholders; public companies are legally required to have external audits.
• Professional guidance for internal auditors is provided by the Institute of Internal Auditors (IIA).

What is an internal auditor?

An internal auditor (IA) evaluates a company’s internal controls, risk management, governance, and record‑keeping to ensure accuracy, efficiency, and regulatory compliance. Although employed by the organization, internal auditors are expected to maintain objectivity and independence in their assessments.

Primary roles and responsibilities

Internal auditors aim to detect and correct problems before they escalate or are found by external auditors or regulators. Common responsibilities include:
* Assessing financial and operational risks and testing internal controls.
Reviewing financial statements, expense reports, inventories, budgeting and accounting practices.
Verifying physical assets and examining transactions for accuracy and compliance.
Conducting interviews, documenting findings, and preparing formal audit reports with actionable recommendations.
Performing follow‑up audits to confirm remediation of identified issues.
* Advising management on process improvements and compliance with applicable laws and accounting standards (e.g., GAAP).

The internal auditing process

A typical internal audit follows these steps:
1. Plan the audit scope and objectives based on risk assessments.
2. Gather evidence through document review, testing, observation, and interviews.
3. Analyze findings and evaluate the effectiveness of controls.
4. Report results to senior management and, where appropriate, the audit committee or board.
5. Recommend corrective actions and monitor implementation through follow‑up work.

Professional standards and guidance

The Institute of Internal Auditors (IIA) sets widely recognized standards, a code of ethics, and best practices for the profession. The IIA defines internal auditing as an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations by evaluating and improving risk management, control, and governance processes.

Internal auditor vs. external auditor

Key differences:
* Employment and reporting: Internal auditors are employed by and report to management (and often the audit committee); external auditors are independent firms engaged to report to shareholders.
Purpose: Internal auditors focus on improving operations, controls, and compliance. External auditors provide an independent opinion on whether financial statements are presented fairly in accordance with applicable accounting standards.
Legal requirement: External audits are typically required for public companies under securities laws; internal audits are not always mandated but are commonly used to strengthen internal oversight.

Benefits of having an internal auditor

• Early detection and remediation of control weaknesses and errors.
• Reduced risk of fraud, regulatory penalties, and reputational damage.
• Improved operational efficiency and cost savings through process improvements.
• Better preparedness for external audits and regulatory reviews.
• Stronger corporate governance and enhanced confidence for stakeholders.

Conclusion

Internal auditors play a central role in strengthening an organization’s control environment, managing risk, and supporting compliance and operational improvement. While not always legally required, a robust internal audit function is a valuable investment for organizations seeking proactive oversight and continuous improvement.