Internal Audit vs External Audit: Which is best for you?
There’s always two sides to every story and that includes a career in audit. The question is, is it the Internal Audit or External Audit side that is going to procure you your happily ever after?
The first thing is to understand what the final objective of either audit type is. External Audit, in 9/10 cases is to express an opinion on financial statements. This is done in accordance with IFRS (International Financial Reporting Standards) or GAAP (Generally Accepted Accounting Principles), as in order to express an opinion you need to know what the gaps are you’re reporting on.
An Internal Auditor doesn’t need to know much about those financial reporting standards. If you’re working in Internal Audit, your goal is more directed towards testing internal processes and making recommendations regarding those processes and the internal controls of the company. These are designed to mitigate and eliminate business risks to the company.
There is a slight overlap between these two types of audit jobs which comes when the External Auditor comes into the business to review their financial statements. Either they’ll go through all the records from the year or test the internal control framework. The more reliable those controls are, the less likely that errors will appear in the financial statements because simply put, the business is already checking itself.
So, while the Internal Auditor identifies risks to improve or develop a set of internal controls to minimise the risk that mistakes will appear on the financial statements, the External Auditor must be able to understand them in order to know where to focus their audit.
While these overlaps can exist, the big difference comes via the financial statements because fundamentally the External Auditor can conduct his or her audit without testing any controls at all.
From the mechanics of the role to the clients on the receiving end, while an Internal Auditor works for a singular company their External Audit counterpart caters to a portfolio of different clients. Certainly, Internal Auditors can work for big multinationals with international subsidiaries to experience that diversity, but in a much different dynamic than someone working in External Audit.
As an Internal Auditor you work very closely with the board and are a colleague of the people you are reviewing and testing. You are there to add value with the board and the company by making them aware of where they can minimise risks. As far as your colleagues treating you like a respected peer, that comes down to how you perform your role. After all, you’re reporting on your colleagues and they might view that as you policing them or dobbing them in. Meanwhile the External Audit professional is not really a colleague, you’re coming in on a temporary basis to add value, though the company may not see it like that.
You need to see which side of the audit coin fits best with your character. Ask yourself whether you like working with lots of different people, or if you would prefer a familiar team. External Audit jobs may appeal to younger, less experienced auditors who aren’t sure which industry they’re interested in. Having exposure to a range of industries will give you a good sense of which business culture fits you best, whether it’s the corporate suit and tie of an insurance firm or the hands-on forklift trucks on a construction site.
If a routine, structured working life is what you’re seeking then Internal Audit jobs should be top of your search list. Working in Internal Audit will really see you get into the details of the business and add a lot of value in your role.
However, if it’s diversity you’re craving and at this point in your audit career you’re unsure of what exactly you want to do, then External Audit jobs can give you that platform to work across a broader range of companies and teams.
So, Internal Audit or External Audit?
An important point to note is that the transition between Internal and External Audit is not straightforward. Though both types of audit role share similar skillsets, including communication, the ability to see beyond what is presented at face value and having an eye for detail, an External Auditor will more easily move into an Internal Audit role, but not necessarily vice versa. This comes down to that familiarity External Auditors must have with financial standards.
The career progression for an External Auditor can be a lot speedier as there is a whole career path designed within the Big Four audit firms, if that’s where you choose to launch your career in External Audit. There are annual opportunities to move up the ladder with the destination being Partner. Meanwhile, Internal Audit careers don’t always offer the same progression given that Internal Audit teams are relatively small, so the most significant move tends to be from Junior to Senior Internal Auditor. That’s not to say there aren’t other directions your Internal Audit career can take you, for example you could move into an advisory role for internal controls, and you could also move into a role in risk.
The life of an External Auditor is generally quite pressured and busy, with long hours and constant deadlines, compared to the relative 9-5 calm of working in Internal Audit. So, consider what you want from your audit career before you venture down either path.