Finance and Accounting 101: All About Internal Auditing

Internal audit is a dynamic profession involved in helping organizations achieve their objectives. It is concerned with evaluating and improving the effectiveness of risk management, control and governance processes in an organization.  

-Institute of Internal Auditors 

Related: Why Outsource Internal Accounting And Auditing Services? 

With so much going on in the industry nowadays, organizations need to secure not just their financial data, but the systems, processes, and internal controls that support it. For accounting firms, this responsibility becomes even more critical — especially as client expectations grow, regulations tighten, and operations become more complex.  

And when internal issues go unnoticed, they don’t just slow the organization down. They create risk. A missing document here. An outdated workflow there. 

While many firms rely solely on external audits to ensure financial accuracy, internal auditing plays a different and equally important role: ensuring the firm itself is running efficiently, securely, and with integrity. 

In this blog, we'll break down what internal auditing really is, how it works, and why more accounting firms are starting to outsource this critical function as they scale. 

What is Internal Audit? 

Internal audit is an activity wherein an organization’s risk management, control and governance process are being evaluated with the aim of improving the overall operations through recommendations based on a systematic and disciplined evaluation of the aforementioned processes.  

For accounting firms, internal auditing goes beyond just reviewing numbers. It’s about taking a step back and asking critical questions: 

• Are we following proper procedures? 

• Are we safeguarding sensitive information effectively? 

• Are there any inefficiencies or outdated processes that need to be addressed? 

The goal of this process isn’t to place blame or find faults — it’s to strengthen the organization from within by employing a fact-finding approach. A well-executed internal audit identifies both what’s working and what needs improvement and offers practical, informed recommendations that can help the organization operate more efficiently, securely, and compliantly in the long run. 

Internal Auditors: Roles and Responsibilities 

In order for a company to proceed with an internal audit, they need to hire an internal auditor first. These professionals have the responsibility to evaluate how well the firm’s systems and operations are working.  

Their focus isn’t limited to financial records; they assess everything from internal controls and IT infrastructure to compliance procedures and company culture. Their goal is to provide a clear, unbiased view of where the organization stands and what needs attention. 

Aside from that, internal auditors also work across various departments, but they often place special emphasis on areas that carry higher risks, such as financial workflows and IT systems. They may examine: 

• Billing, payroll, and reconciliation processes 

• Security of accounting systems and access controls 

• Adherence to internal policies and regulatory requirements 

• Signs of fraud, inefficiency, or mismanagement 

• Soft indicators like employee morale and ethical standards 

After completing their assessment, internal auditors will come up with a report to be presented to the organization’s management. These reports contain the progress of the organization in achieving its goals and areas that can and/or should be improved. 

For accounting firms, this insight can be very important in helping leadership make informed decisions and strengthen operational performance across the board. 

Read: Why Consider Internal Audit Outsourcing for Your Company 

Benefits of Internal Auditing 

While some internal audit is required in countries like the United States, particularly for publicly listed companies, it remains a non-compulsory activity in many parts of the world. 

Still, the importance and benefits of conducting internal audits go far beyond regulatory requirements. For accounting firms, internal auditing plays a critical role in helping management see where the organization is headed, what areas can be improved, and what steps are needed to move forward with confidence. 

Here’s how internal auditing brings value to accounting firms: 

1. Identifies and understands risks

One of the most important benefits of internal auditing is its ability to help organizations uncover risks that might otherwise go unnoticed. Whether it’s gaps in client workflows, system vulnerabilities, or compliance blind spots, an internal audit provides a clear view of where the firm may be exposed and how to address those issues before they escalate or become bigger problems in the long run that might affect the reputation of the organization. 

2. Prevents loss of assets and resources

Another good thing about conducting internal audits is that they reveal areas where the firm may be losing money or wasting resources whether through manual processes, billing errors, or overlooked internal controls.  

A good example of this is when firms rely too heavily on manual bookkeeping or outdated systems. These methods can increase the risk of human error or mistakes in data entry, missed invoices, or duplicate payments, which can quietly eat into profits over time.  

However, by conducting internal audits, companies can pinpoint exactly where these issues are occurring and why they’re happening.  

This allows the firm to take corrective action—whether that’s adopting automation tools, tightening review procedures, or retraining staff on key processes. In the long run, this proves beneficial, as firms can redirect their resources toward more strategic initiatives.. 

3. Improves the Accuracy of Financial Reporting

As they say, reliable financial reporting is the backbone of any accounting firm. And when your internal processes are consistent, well-documented, and regularly reviewed, you reduce the chances of errors making their way into final reports.  

This becomes especially important during tax season or when preparing reports for stakeholders, where even minor misstatements can lead to compliance issues or damage client trust.  

Internal audits help ensure that reporting standards are being followed and that every figure is backed by proper documentation. This added layer of review gives management greater confidence in the firm’s numbers and reinforces your reputation in the industry. 

4. Supports Compliance with Laws and Regulations

For accounting firms, staying compliant isn’t optional — it’s a daily necessity. Whether it’s meeting tax deadlines, following local reporting requirements, or adhering to industry standards, it’s something that firms need to do.  

This is why internal auditing plays such a vital role. It helps ensure that your team is following established policies and procedures and that those policies are aligned with current regulations.  

5. Strengthens Client Trust and Reputation

Lastly, when internal processes are organized and regularly reviewed through internal audits, it sends a clear message to clients: this firm takes quality and integrity seriously. 

Trust is a often a non-negotiable factor for clients and investors alike given that they hand over sensitive financial data and rely on your expertise to manage their books, file taxes, and provide accurate reports;, they want to know that your firm operates with discipline and transparency.  

Good thing, internal audit helps reinforce that trust by ensuring that your systems are safe and sound — that data is handled properly, risks are under control, and operations are consistently monitored. 

When clients see that your firm is actively maintaining high standards behind the scenes, it builds long-term confidence. And in a business built on trust, that’s something you can’t afford to overlook. 

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

A common point of confusion is the role of internal auditors when external auditors are already involved. But the two functions are not interchangeable — they serve different objectives and are conducted in different contexts. 

External audits focus primarily on an organization’s financial health. Carried out by independent auditors who are not affiliated with the organization, these audits assess whether the company’s financial statements are accurate, complete, and in line with applicable accounting standards.  

In addition, external audits are often required by law and are intended to provide assurance to stakeholders such as investors, regulators, and the general public. 

Internal audits, on the other hand, are focused on the risks your organization faces and how those risks are being managed. The goal is to improve operations, strengthen internal controls, and help the organization meet its objectives more effectively. 

In short: 

• External audits are about confirming financial reliability and are performed by independent auditors. 

• Internal audits are about driving continuous improvement and are carried out by in-house or outsourced internal audit teams. 

Before we go further, here’s a quick side-by-side comparison to highlight the key differences between internal and external audit: 

So while your external audit ensures your books are in order from a compliance standpoint, your internal audit ensures your firm is in order — from systems and controls to people and processes. 

Relying on one without the other is like checking your engine light but ignoring the rest of the dashboard. When used together, both audits can give your firm a clear overview, helping you stay compliant, and better serve your clients. 

In-House vs. Outsourced Internal Auditing: What Works Best? 

Now that we’ve discussed what internal auditing is and how it’s different from external audits, there’s one more question that firms often ask:  

Should we handle internal audits ourselves, or bring in someone from the outside? 

Both approaches can actually work. It really depends on your resources, how complex your operations are, and what kind of support your team needs. 

Let’s take a closer look at each option. 

In-House Internal Auditing 

Some accounting firms prefer to keep things in-house as this setup gives them full control over their process and helps build a team that understands the main systems of the organization from top to bottom.  

However, hiring someone internally means you’ll need to budget their salary, training, and the tools they need. And because they’re part of the same environment they’re auditing, it can be harder for them to stay fully impartial — especially when reviewing decisions or systems they were either involved in or influenced by. 

What works well with in-house auditing: 

• You have full control over the timing and focus of each audit
  • Your internal auditor understands your processes and culture 
  • They’re available when you need them on short notice 

What to consider: 

• Higher costs over time — think salaries, tools, and certifications
  • Risk of internal bias or conflicts of interest 
  • Less exposure to how other firms are solving similar problems 

Outsourced Internal Auditing 

Outsourcing internal audits, on the other hand, allows firms to tap into specialized expertise without the overhead of hiring a full-time audit team. You get access to professionals who have experience across industries, understand compliance trends, and bring a fresh perspective to your internal challenges. 

This option is especially beneficial for small to mid-sized firms — or those experiencing rapid growth — who want flexible, unbiased insights without long-term staffing commitments. 

Pros: 

• Lower cost compared to maintaining an internal team 

• Objective, third-party perspective 

• Access to up-to-date expertise and tools 

• Scalable support as your firm grows 

Cons: 

• Less day-to-day visibility into firm culture 

• Requires strong communication and coordination 

• May take time to onboard external teams to your specific systems 

Read Next: Comprehensive Guide on Outsourcing Audit Support Services 

So, What’s Right for Your Firm?  

If your firm is growing or if you want insights from specialists who work across multiple firms, outsourcing your internal audit function might be the more practical route. 

It gives you immediate access to expertise and keeps things moving without putting extra pressure on your current staff. But if you have the budget, capacity, and a need for full-time oversight, an internal hire might be a better long-term investment as long as they can stay objective and supported with the right tools. 

The bottom line 

Whether in-house or outsourced, internal auditing shouldn’t be overlooked. What matters is choosing the structure that supports your firm’s goals, ensures independence, and helps you make smarter, more secure decisions as you scale. 

How D&V Philippines can help 

Are you searching for a dependable outsourcing partner for your internal accounting and auditing needs? Look no further than D&V Philippines. 

With over a decade of experience in supporting accounting firms across the globe, we offer specialized finance, accounting, and audit support services tailored to your firm’s unique requirements. Schedule a free consultation with us today.    

You can also download our Seasonal Audit Support for US Audit Firms and discover how our audit support solutions can help you deliver quality services even during the busy audit season.    

This post was first published on 06 March 2015 and edited on 13 August 2025.

Edited by: Angelica Garcia