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The Pros and Cons: Comparing Internal and External Auditing Methods

The Pros and Cons: Comparing Internal and External Auditing Methods

Table of Contents

Auditing – A Bird’s Eye View

Auditing, whether internal or external auditing, paints a fair picture of the financial or just overall performance of an organization. Whether you are looking for financial transparency or want to gauge an organization’s regulatory compliance, an audit is considered the safest and most reliant route to take.

As a business owner or a partner in one, you are tasked with plentiful responsibilities, from keeping the business profitable to driving constant growth, add into the mix complying with all the regulatory norms you are subjected to, and you find yourself needing more breath.

This is where the auditors enter your world. Auditors are the much-needed respite for business owners looking for compliance, accuracy, and efficiency. However, internal vs external auditing is a lot more complicated than that.

The audit world, too, has its complications; choosing between internal and external auditing is the most challenging. While both are ways of auditing your firm’s performance, there’s an intricate maze you must go through when looking for the best auditing method for your firm. With this blog, we intend to dispel the age-old confusion surrounding internal vs external auditing methods.

We will take a closer look at internal vs external auditing to better understand the pros and cons of both auditing methods. This will also help you know the right approach for your business and the best auditing method. So, let us get started.

Internal Auditing – A Closer Look

Internal auditing sticks true to its purpose of helping the organization streamline its operations, earn more profit, and optimize its resource management. More often than not, an internal audit is part of any business’s operations, and thus, the auditors are employees of the organization tasked with providing an objective and independent assessment of the firm’s financial performance. Let’s look at the potential pros and cons of internal auditing.

Pros of Internal Auditing:


In the audit game of internal vs external auditing, internal audits can be tailor-made to suit your specific business. They allow you to dive deep into any aspect of your firm’s financial performance that you want to scrutinize. This will enable you to have proactive risk management and tailored insights to improve that particular aspect of your financial performance.

Proactive Internal Watchdogs

Internal auditors are constantly accessing and assessing your financial performance and thus have the ability to avert any possible risk before it turns into a full-blown problem. With this proactive approach, you significantly lower the run-ins with the authorities and safeguard your business from any potential reputational or financial damage.


Considering most of the internal auditors are the firm’s employees, they tend to be easy-on-budget. You don’t have to pay anything additional to these employees and do not have to hire anyone from outside to have your books and financial statements audited.

Cons of Internal Auditing

Potential Bias

The internal familiarity with the firm can often work against the internal auditors as it can lead to unconscious bias. Internal auditors also can be hesitant to confront or report any sensitive financial wrongdoing due to their familiarity with the organization.

Lack of Digital Accounting Know-How

Audits can be time-consuming and require a certain level of skills. Thus, you must have the necessary digital accounting know-how to avoid wasting time, eventually leading to disorganized financial data and poor reporting.

Disruption to Internal Operations

Internal employee audits can easily disrupt the internal business processes. This can eventually hamper the performance of the company.

External Auditing – The Independent Critic

While internal auditing might come as an internal confidante, external auditing is where you face the harsh reality. In the game of internal vs external auditing, external auditing offers a more objective and truer overview of your financial performance.

Mostly, the external auditors have a name and reputation that they need to protect at all costs, and thus, they dig deep into your financial statements, books, and regulatory statements to ensure that you comply with all the necessary rules. The autonomy of external auditors also gives them additional creditability when put alongside the internal auditors. However, they, too, have some drawbacks, and in the following section, we will look at some of the pros and cons of external auditing.

Pros of External Auditing

Increased Transparency

With an external auditor, you are always in check with your financial statements and have the time to rectify any inaccuracies. This additional safety helps your business attract new investors and maintains confidence among the shareholders.

Regulatory Compliance

External auditors are well versed with the financial regulations that, as a business, you need to abide by. They constantly upskill themselves to stay updated and relevant in the constantly evolving economic and regulatory landscape. As a result, they are fully equipped to keep your firm away from potential penalties, fines, or even worse, reputation damage.

Advanced Financial Expertise

Whether you partner with an external auditing firm or hire an independent auditor, they both are highly qualified professionals. They have spent years helping organizations with fraud detection, financial analysis, and forensic accounting, which makes them perfect for auditing in the modern economic landscape. This advanced financial expertise helps them identify and flag any irregularities in the economic data, protecting your firm from getting under any scanner.

Cons of External Auditing

Additional Burden on the Budget

Hiring external auditors can take a toll on your existing budget, primarily if you have yet to account for it. Small and medium-sized firms might need help to incur the cost of an external review, which can hurt their financial well-being. Even for the more prominent firms, external auditing can be an additional expense, which can disbalance their overall financial statements.

Lack of Familiarity with Internal Systems/Procedures

Because of the external nature of auditing, the internal procedures and context seem alienate to the auditors. As a result, it can lead to misunderstandings and inaccuracies in the assessments. Thus, when you are partnering with an external auditor, ensure you educate them entirely on the procedures and systems of your organization.

Limited Scope

Due to unfamiliarity with the internal procedures and systems, the external auditors might find it hard to offer a detailed view on a very granular level that an internal auditor can offer. Furthermore, the increased focus on financial systems and statements might lead to an overlook of the operational side of the firm, which can cause problems in the long run.

It's not Internal vs External Auditing, It’s Internal or External Auditing

In the debate of internal vs external auditing, there never will be a consensus, for they both have their own pros and cons. As an organization making the decision to pick one will always be a daunting one, considering the financial accountability and the risk mitigation that is at stake.

The good thing is that you are not alone here. Thus, when you are deciding between internal vs external auditing, it is quite imperative to take the decision completely based on the context and the need of the organization.

If what you are looking for is an intimate and flexible audit, then internal auditing perfectly fits the bill for you. However, if what you need is a proactive audit to fuel continuous improvement and risk management for your firm, then you are better off with external auditing. However, if you can’t decide what’s the best option for you, write in to us at [email protected] and we will have our experts reach out to you with a solution perfectly tailored for your business.


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