Internal vs External Audit: A Guide to Audit Types in the UK

What Are the Main Audit Types in the UK?

In the UK, the two most common audit types are internal audits and external audits. While both involve reviewing systems, records and controls, their purpose and outcomes are different.

An internal audit is designed to help management improve processes, manage risk and strengthen internal controls. An external audit is focused on providing independent assurance over financial statements for shareholders and other stakeholders.

Both audit types can play an important role in protecting business assets and ensuring accurate reporting.

What Is an Internal Audit?

An internal audit is a review carried out to assess how well a business’s internal systems and controls are operating. It may be performed by an internal team or by an external adviser acting in an internal audit capacity.

The focus of an internal audit is on identifying risks, weaknesses and inefficiencies before they become serious issues. This can include reviewing financial controls, operational processes, compliance with policies and safeguarding of assets.

Internal audits are flexible and can be tailored to specific areas of concern, such as cash handling, payroll controls or client money processes. Because they are advisory in nature, internal audits help businesses strengthen controls and improve accountability.

What Is an External Audit?

An external audit is an independent examination of a company’s financial statements carried out by a registered auditor. For some businesses, an external audit is a legal requirement known as a statutory audit.

The purpose of an external audit is to confirm that the financial statements present a true and fair view of the company’s financial position and comply with accounting standards and legal requirements.

External auditors must remain independent and follow strict professional standards. Their work includes testing transactions, reviewing balances and assessing whether financial controls reduce the risk of material misstatement. 

The outcome is an audit report that provides assurance to shareholders, lenders and regulators.

Internal vs External Audit: Key Differences

The main difference between internal vs external audit lies in their objectives. Internal audits are forward-looking and designed to support management. External audits are focused on financial reporting and assurance for external parties.

Internal audits are flexible in scope and timing and can be carried out as often as needed. External audits follow a defined structure and are usually completed annually.

Internal audit findings are reported internally, while external audit reports form part of the company’s published accounts.

Despite these differences, both audit types contribute to stronger governance and asset protection.

The Audit Process Explained

While the audit process varies depending on the type of audit, there are common stages.

Audits typically begin with planning, where the auditor gains an understanding of the business, identifies risks and agrees the scope of work. This is followed by a review of systems and controls, particularly those relating to financial reporting and asset management.

Testing is then carried out on selected transactions and balances to confirm accuracy and reliability. Auditors also assess key judgements and estimates to ensure they are reasonable and supported.

The final stage involves reporting findings. Internal audits usually provide recommendations for improvement, while external audits result in a formal audit opinion.

How Audits Help Protect Client Assets

One of the most important roles of an audit is asset protection. Both internal and external audits help ensure that assets are properly recorded, safeguarded and used appropriately.

Audits review controls over cash, bank accounts, receivables and other valuable assets. They assess whether access is restricted, approvals are in place and reconciliations are performed regularly.

For businesses that hold client money or valuable assets on behalf of others, audits provide reassurance that appropriate safeguards exist. This reduces the risk of error, misuse or fraud and helps maintain trust with clients and regulators.

Regular audits also help identify control weaknesses early, allowing businesses to strengthen processes before losses occur.

Which Audit Is Right for Your Business?

Not every business requires both an internal and external audit. Smaller companies may not need a statutory audit but can still benefit from internal reviews to improve controls and prepare for growth.

Larger or regulated businesses often use both. Internal audits help maintain strong systems throughout the year, while external audits provide independent assurance and meet legal obligations.

Choosing the right audit approach depends on your size, sector and objectives.

How Wisteria Can Help

At Wisteria, we support businesses with a range of audit and assurance services, including statutory audits, voluntary audits and advisory reviews. Our approach focuses on clarity, efficiency and protecting the assets and interests of our clients.

We help businesses understand audit requirements, strengthen internal controls and ensure financial reporting is accurate and compliant. Whether you are reviewing internal processes or meeting external audit obligations, our team provides practical advice tailored to your needs.

If you would like to discuss audit types in the UK or understand how an audit could benefit your business, contact Wisteria today. Our specialists are here to provide clear guidance and trusted support.