Internal Audit vs. External Audit - What's the Difference?

Audits are an important element of any Governance, Risk, and Compliance (GRC) program, regardless of its size. Whether conducted internally or externally, audits provide the structure and oversight needed to validate that policies are being followed, controls are working as intended, and regulatory requirements are being met. They offer organizations a clear view into how well risks are managed, where gaps may exist, and how to continuously improve compliance practices. 

Understanding the distinction between internal and external audits isn’t just about meeting compliance obligations; it’s about building a sustainable, risk-aware organization. Each type of audit offers unique value, involves different stakeholders, and serves different strategic purposes. Together, they provide the visibility and assurance needed to support long-term business resilience. 

In this article, we break down the differences between internal and external audits, explore how they work together in a mature GRC strategy, and offer guidance to help you select the right audit approach based on your organization’s needs, maturity, and risk profile.

The Role of Audits in GRC Programs

Audits serve as the formal mechanism for evaluating how well your organization is managing risk, complying with regulations, and implementing internal controls. Within the context of GRC: 

• Governance: Audits help ensure policies, procedures, and decision-making structures are functioning as intended. 

• Risk: Audits evaluate the effectiveness of your risk management practices, including how risks are identified, assessed, and mitigated. 

• Compliance: Audits verify adherence to legal, regulatory, and contractual obligations—helping avoid fines, penalties, or reputational harm. 

Whether internal or external, audits are essential for validating your GRC framework and identifying areas where controls can be improved, or risks need to be addressed.

What is an Internal Audit?

Internal audits can either be conducted by internal members of your organization, either as part of a dedicated internal audit team or in collaboration with internal risk, compliance, or operational teams. The primary purpose of an internal audit is to evaluate and improve the effectiveness of internal controls, risk management, governance processes, and operational efficiency. 

Key characteristics of internal audits: 

• Ongoing and proactive: Often scheduled throughout the year and aligned with emerging risks or organizational changes. 

• Flexible scope: Can include financial, operational, IT, compliance, and strategic risk areas. 

• Advisory role: Internal auditors work closely with management and the board to recommend improvements and support decision-making. 

• Non-mandatory but highly beneficial: While not required by law, internal audits are a best practice for maturing organizations and GRC programs.

What is an External Audit? 

External audits are conducted by independent third-party auditors or firms, such as certified public accountants (CPAs). They are typically required by regulatory agencies, investors, or contractual obligations and focus primarily on financial accuracy and compliance with specific standards. 

Key characteristics of external audits: 

• Independent and objective: Auditors have no stake in your business and provide an unbiased assessment. 

• Focused on compliance and assurance: Ensures financial statements are accurate and compliant with accounting standards and regulations (e.g., SOX, SOC 2, IFRS, GAAP). 

• Legally required: Especially for public companies, companies seeking funding, or those operating in regulated industries. 

• Reported externally: Findings are shared with investors, regulators, and external stakeholders.

How Internal and External Audits Work Together in GRC 

Internal and external audits are complementary and not competitive. In a well-designed GRC program, they reinforce one another to provide both depth and credibility to your risk and compliance posture. 

Internal Audits Prepare You for External Audits 

By identifying and addressing control gaps, weaknesses, and process inefficiencies, internal audits reduce the risk of surprise findings during external audits. They help teams refine documentation, implement corrective actions, and ensure systems are audit-ready year-round. 

External Auditors May Leverage Internal Audit Work 

If your internal audit function is well-documented and risk-based, external auditors may review and rely on this work as part of their own audit. This can reduce the time, scope, and cost of the external audit. 

Supporting Continuous Improvement 

Internal audits provide ongoing insights and recommendations, while external audits offer independent verification. Together, they help organizations: 

• Maintain audit readiness 

• Respond more effectively to incidents 

• Demonstrate accountability to regulators and stakeholders 

• Improve compliance with frameworks such as SOX, ISO 27001, HIPAA, and SOC 2

Choosing the Right Audit Strategy for Your GRC Program

Selecting an audit strategy should reflect your organization’s size, maturity, regulatory obligations, and risk appetite. Here’s how to approach it: 

1. Assess Your Regulatory Requirements 

• Are you a public company? You’re likely subject to mandatory external audits under regulations like Sarbanes–Oxley (SOX), SOC 2, etc. 

• Are you seeking investment or government contracts? External audits may be a requirement from investors or procurement partners.

• Do you handle sensitive data (e.g., healthcare, financial services)? Compliance frameworks like HIPAA or PCI DSS may require independent assessment. 

2. Evaluate Internal Capacity and Resources 

• Startups and small businesses: May lack the resources for an in-house audit team. Consider outsourcing internal audit functions or performing periodic risk-based internal reviews. 

• Growing and mid-market organizations: Should begin building internal audit functions to support risk management, regulatory alignment, and operational oversight.

•  Large enterprises: Often have formalized internal audit departments and require both internal and external audits for different layers of assurance. 

3. Align Audit Functions with GRC Technology 

Whether you're conducting internal or external audits, leveraging a GRC platform like StandardFusion can streamline the process by: 

• Centralizing evidence collection and document management 

• Automating control testing and risk assessments 

• Mapping internal controls to multiple compliance frameworks Providing dashboards and reports for audit readiness 

This integration ensures audits are not isolated from events, but part of a continuous, scalable compliance program. 

Conclusion 

Both internal and external audits are vital components in a mature GRC program. Internal audits drive continuous improvement by identifying and mitigating emerging risks, as well as ensuring the effectiveness of your control environment. External audits offer objective validation, build trust with stakeholders, and confirm compliance with laws and regulations. 

Together, they create a comprehensive audit ecosystem that supports resilience, transparency, and long-term business success. Organizations that invest in both will be better positioned to manage risk, meet compliance obligations, and adapt to regulatory change without sacrificing agility or growth. By choosing the right audit strategy, supported by the right tools and resources, you lay the foundation for a GRC program that’s not only compliant but also forward-looking and future-proof.