In many organizations, the line between internal and external auditors can appear blurry, yet their functions differ greatly in purpose, execution, and responsibility. Understanding these distinctions is key to fostering a productive relationship that serves the entire company. As someone who has spent years on both sides—first in external audit and later within internal audit teams—I’ve seen firsthand where collaboration thrives and where confusion can cause unnecessary tension.
This article offers insights for improving coordination, clarifying roles, and managing expectations when internal and external auditors work together. Whether you’re part of an audit team, an executive sponsor, or a board member overseeing the audit process, these lessons can help ensure that each party contributes effectively without overstepping boundaries.
Understanding External Audit
External auditors are brought in by an organization—often due to regulatory requirements or obligations to shareholders—to conduct an independent evaluation of its financial statements. Their job is to assess whether those statements present a fair view of the company’s financial performance and are free from significant error. This evaluation must align with established accounting frameworks such as Generally Accepted Accounting Principles (GAAP).
The process typically starts before the fiscal year ends with preliminary or “interim” work. Auditors may conduct control walkthroughs, observe inventory counts, and issue confirmations to banks or clients. Once the fiscal year concludes, they return for the main event: a detailed inspection of transactions, balances, disclosures, and internal processes.
At the conclusion of their fieldwork, external auditors issue one of several possible opinions:
- Unqualified opinion: Everything appears accurate and well-presented.
- Qualified opinion: There were notable issues, such as missing information or errors that weren’t corrected.
- Going concern warning: Though technically unqualified, this opinion signals doubts about the company’s ability to continue operating in the near future.
These opinions carry weight with investors, creditors, and regulators. Hence, external auditors must maintain independence and objectivity throughout the process.
Internal Audit’s Role in the External Audit Process
While internal auditors aren’t responsible for issuing public opinions, they often become key players in facilitating the external audit. This involvement begins far earlier than most people realize—starting with the Request for Proposal (RFP) stage when organizations seek bids from audit firms. Internal auditors may be tasked with organizing submissions, reviewing proposals, and advising the audit committee on selection.
After a firm is hired, internal audit continues to support the relationship. This support may include:
- Helping coordinate document collection.
- Providing logistical arrangements like workspace and access credentials.
- Acting as a liaison between departments and the audit team.
- Ensuring the auditors get what they need in a timely, secure way.
These tasks, while seemingly administrative, are critical to the audit’s success. Internal auditors have cross-functional visibility and access to key systems, making them well-positioned to assist without interfering.
Know Where to Draw the Line
Where problems begin is when internal auditors take on too much of the external auditors’ responsibilities. While collaboration can reduce duplication of effort and lower costs, it’s important to respect the limits.
In some cases, audit committees may approve internal audit teams conducting specific testing on behalf of the external firm. This is permissible under auditing standards, but such tasks should be formally agreed upon and time-budgeted. If not, there’s a risk of undermining the independence or effectiveness of either team.
For example, it’s fine for internal audit to prepare audit confirmations if asked, but it’s not their job to conduct external testing or issue conclusions. Let external auditors complete their procedures, form their own judgments, and be accountable for the results. Trying to “help” by stepping in too far might compromise both teams’ objectivity and lead to confusion about ownership.
Don’t Speak on Behalf of Others
A well-meaning internal auditor might be tempted to answer external auditors’ questions—especially when the appropriate subject-matter expert is unavailable. After all, internal audit often knows the processes, systems, and people better than anyone. But this can create a significant problem.
Even a small comment or interpretation, if incorrect, can mislead external auditors or distort their understanding of a control or transaction. It’s important to resist the urge to speak for management or operational teams. Instead, internal auditors can guide the auditors to the right contact and help ensure that the communication happens efficiently.
Being available as a sounding board or offering insight once the auditor has heard from the right source is fine. But stepping in as a substitute can introduce risk—and it may even result in external auditors misapplying procedures or forming conclusions based on incomplete information.
Set Boundaries Early and Clearly
One of the best things internal audit teams can do to avoid confusion is to set expectations from the beginning. Hold a kickoff meeting with both internal and external audit leads. Discuss which team will handle what, establish communication protocols, and agree on shared timelines.
Make sure your audit committee understands where the internal audit team will draw the line—and document these decisions so no one forgets or overreaches later. If external auditors request tasks that feel outside the agreed-upon scope, it’s perfectly appropriate to escalate the concern to senior leadership.
Audit firms, like all businesses, operate on budgets and timelines. The temptation to lean on a competent internal audit team is real—but your role isn’t to manage their deadlines or workload. It’s to collaborate professionally, not to become an unpaid extension of their engagement team.
Recognize the Limits of External Audit
One of the most common misconceptions is that external auditors will catch every mistake, fraud, or process failure within an organization. This is simply not true.
External auditors perform their work on a sample basis and within the constraints of materiality. They are not forensic experts or internal watchdogs. Their opinion is based on reasonable—not absolute—assurance. They’ll miss things. That doesn’t mean they’re doing a bad job; it just reflects the nature of their role.
When things go wrong, people often ask, “Why didn’t the auditors catch this?” Understanding how external audit works helps manage these expectations. Internal audit teams can play an important role in educating leadership and the board on concepts like audit scope, sampling, and risk-based focus.
This helps prevent finger-pointing when issues emerge and encourages the organization to take a more proactive, internal approach to risk management and oversight.
Support Without Overstepping
The best working relationships between internal and external audit teams are built on mutual respect and clear roles. Internal audit provides logistical support, background context, and access—but doesn’t interfere with testing or speak for other departments. External auditors bring an independent, expert perspective and should be expected to do the heavy lifting when it comes to audit procedures and conclusions.
When boundaries are respected, both functions can complement each other. The external team ensures the financials are accurate and credible. The internal team ensures controls and processes are working effectively day to day. Together, they form a powerful safeguard against risk and mismanagement.
Final Thoughts
A healthy internal-external audit relationship doesn’t just make life easier for auditors—it protects the company, improves reporting quality, and fosters transparency with stakeholders. Both teams have unique responsibilities and perspectives, and when they work together well, the entire organization benefits.
Remember: collaboration is good, but independence is essential. Support each other, communicate clearly, and don’t be afraid to speak up when lines begin to blur. In the long run, this professional respect and discipline will strengthen both audit functions—and the company they serve.