Audit and Assurance · Internal audit and governance and the differences between external audit and internal audit

Types of Internal Audit Assignments for ACCA AA

Updated 11 October 2026 · Fact-checked

Internal audit assignments are the pieces of work an internal audit function carries out for management. The main types are value for money, financial, IT, compliance, operational and risk management reviews. Identify the objective in the scenario, match it to the type, then state the work performed and the outcome. Outsourcing is a separate delivery choice.

Understand Types of Internal Audit Assignments

Internal audit is an appraisal activity set up by management. Its scope is decided by management or those charged with governance, not by law. So the work varies a lot. Each piece of work is called an assignment, and you classify it by its objective.

The main types are:
- Value for money (VFM) audit: checks whether resources are used economically, efficiently and effectively (the three Es).
- Financial audit: checks the reliability of financial records and information, and the safeguarding of assets.
- IT audit: reviews computer systems, general and application controls, security, and whether systems meet business needs.
- Compliance audit: checks adherence to laws, regulations, internal policies and procedures, and contract terms.
- Operational audit: reviews the specific operations of a department or process, looking at the efficiency and effectiveness of controls and procedures.
- Risk management review: assesses how the organisation identifies, assesses and responds to risk, and whether the process works.

The key contrast with external audit is that external audit gives an opinion on the financial statements to shareholders. Internal audit reports to management or the audit committee and can cover anything of interest to them. An internal financial audit is not the same as the statutory audit. It tests controls and records to help management, and it does not give a true and fair opinion.

Organisations can run internal audit in-house, outsource it to a third party, or use a mix (co-sourcing). Outsourcing brings specialist skills and flexibility, but it raises issues of cost, loss of business knowledge, confidentiality and independence.

Key rules to remember

Three Es of value for money: VFM = Economy + Efficiency + Effectiveness; Economy: inputs at lowest cost for suitable quality. Efficiency: maximum output from given inputs. Effectiveness: outputs achieve the intended objectives.
Assignment match rule: Objective in scenario → assignment type; Costs and resource use = VFM. Accuracy of records = financial. Rules and policies = compliance. Systems and security = IT. Process or department = operational. Risk process = risk review.
Outsourcing issue check: Advantages vs disadvantages: skills, cost, flexibility vs knowledge, control, confidentiality, independence; Use as a checklist for outsourcing questions.

How to solve Types of Internal Audit Assignments questions

Use this method for any question on internal audit assignments, whether it asks you to identify a type, describe the work or discuss outsourcing.

1Read the requirement. Decide whether it asks you to identify a type, describe procedures, or discuss pros and cons.
2Pick out the objective in the scenario: costs, accuracy, rules, systems, a process or risk.
3Name the assignment type that fits that objective.
4Define it briefly in one sentence, linking it to the scenario.
5Describe specific procedures tied to the facts, such as comparing costs, testing controls or reviewing policies.
6State what the report should give management and who receives it.
7For outsourcing, give balanced points, each linked to the company's situation, then conclude.
8Check you have not drifted into external audit points such as a true and fair opinion.

Quickest way: Keyword matching

When to use it: Use in Section A or B objective questions where you must name the type of assignment quickly.

Underline the key word: cost, accuracy, law, system, department or risk.
Match it: cost = VFM, accuracy = financial, law or policy = compliance, system = IT, department = operational, risk process = risk review.
If two seem to fit, choose the one matching the main purpose stated in the scenario.
Eliminate options that describe an external audit opinion or that mix up the three Es.

Common mistakes in Types of Internal Audit Assignments

Treating internal financial audit as the same as the statutory audit.
Both look at financial information, so they seem identical.
Fix: Remember internal audit serves management, is not required by law and gives no true and fair opinion.
Mixing up economy, efficiency and effectiveness.
The terms sound similar and are often used loosely.
Fix: Economy = cost of inputs, efficiency = output per input, effectiveness = achieving objectives.
Confusing compliance and operational audits.
Both review how work is done in a department.
Fix: Compliance tests against rules and policies. Operational reviews how well the process performs.
Giving generic outsourcing points not linked to the scenario.
Students recall a memorised list.
Fix: Tie each point to facts given, such as company size, need for IT skills or confidentiality of data.
Listing assignments without describing the work performed.
Students stop at the label.
Fix: After naming the type, give two or three procedures and the outcome for management.
Forgetting that outsourcing to the external auditor threatens independence.
Students focus on cost and skills only.
Fix: State that the external auditor generally should not provide the internal audit service to an audit client because of self-review and management threats.

Worked examples

Example 1

A retail company's internal audit team is asked to review whether the purchasing department buys stationery at the lowest cost for acceptable quality, whether the orders are processed with minimal waste, and whether purchases support the company's cost-saving target. Identify the assignment type and explain the work.

Show the solution

The focus is on cost, use of resources and achieving a target. This points to a value for money audit.
Economy: compare prices paid with alternative suppliers and check whether bulk discounts are used.
Efficiency: measure the time and staff effort per order and look for duplication or delay.
Effectiveness: compare actual savings with the cost-saving target.
Report findings and recommendations to management or the audit committee.

Answer: This is a value for money audit. The team examines economy, efficiency and effectiveness of purchasing and reports recommendations to management.

Example 2

A company with a small finance team and no IT expertise is considering outsourcing its internal audit to a firm of accountants. Discuss the advantages and disadvantages.

Show the solution

Advantage: the firm brings specialist skills, including IT audit, that the company lacks.
Advantage: flexibility, as the company buys only the hours needed and avoids recruitment and training costs.
Advantage: the provider may be more independent from management than in-house staff.
Disadvantage: the provider has less knowledge of the business and may take time to learn it.
Disadvantage: fees may be higher over time and control over the work is reduced.
Disadvantage: confidential information is shared with a third party, and the provider must not be the external auditor because of independence threats.
Conclusion: outsourcing suits this company because it lacks skills, provided confidentiality and the provider's independence are managed.

Answer: Outsourcing gives skills, flexibility and independence but reduces business knowledge and control and raises confidentiality concerns. It is likely suitable for this company if the provider is chosen carefully and is not the external auditor.

Exam tips

Always read the objective in the scenario before choosing a type. The label depends on purpose, not on the department.
In Section C, write the type, definition, procedures and report in that order so the marker can follow your answer.
Link each outsourcing point to the company's facts. Generic points earn few marks.
Do not describe internal audit as providing an opinion on the financial statements.
For VFM questions, quote the three Es by name and give one test for each.

Types of Internal Audit Assignments in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Types of Internal Audit Assignments: frequently asked questions

What is a value for money audit in ACCA AA?

It is a review of whether an organisation uses its resources economically, efficiently and effectively. It is common in public sector and not-for-profit bodies but applies to any entity. The report gives recommendations to management.

What is the difference between an operational audit and a financial audit?

An operational audit looks at how well a process or department performs and whether its controls work. A financial audit looks at the reliability of financial records and the safeguarding of assets. Neither gives the external audit opinion.

What are the disadvantages of outsourcing internal audit?

The provider may lack knowledge of the business, control over the work is reduced and fees may be high. Confidential information is shared with an outsider. Independence threats arise if the provider is also the external auditor.

Is a compliance audit the same as a risk management review?

No. A compliance audit tests adherence to laws, regulations and internal policies. A risk management review assesses how well the organisation identifies, assesses and responds to risk.