Top Internal Audit Interview Questions & Answers (With Examples)

1. What are the Applicability of Internal Audit?

This is a basic question, but it's important to know the answer to this one. If a company meets any of the below limit then it will need to conduct internal audit (Companies Act 2013):

• Turnover - ₹200 crore or more
• Outstanding loans or borrowings exceeding ₹100 crore
• Paid-up share capital of ₹50 crore or more
• Outstanding deposits over ₹25 crore

2. Importance of Internal Auditing

Internal audits help organisations manage their risk, remain compliant and improve efficiency. The main purpose of internal audits is supplying independent assurance that an enterprise’s corporate governance and related processes work effectively.

They help to detect fraud, increase operational efficiency and ensure the accuracy of finance reporting. Internal audit interview questions related to this area are mostly about the role of internal audits in risk management and corporate governance

• Turnover - ₹200 crore or more
• Outstanding loans or borrowings exceeding ₹100 crore
• Paid-up share capital of ₹50 crore or more
• Outstanding deposits over ₹25 crore

3. What Are the Steps in an Internal Audit?

An organized approach helps create a complete audit. The key steps include:

• Planning: also Establish the scope and objectives, and allocate resources for the audit.
• Fieldwork: Collect and assess financial and operational information.
• Testing: Conduct substantive and control testing to substantiate data integrity.
• Reporting: Document the findings, offer recommendations and share them with stakeholders
• Follow-up: Ensure corrections have been implemented for any of the above.

Internal audit interview questions also require candidates to elaborate on these steps with practical examples of the audits performed.

4. What Are the Key Components to Conduct an Internal Audit?

The prerequisites for an internal auditor to carry out an audit are:

• A clear internal audit plan.
• Financial records, policies and operational data for conducting analysis.
• Knowledge of risk assessment methodologies and regulatory compliance.
• Also, you must have great communication skills to be able to interact with management.

Common internal audit interview questions also test a candidate’s aptitude to link audit objectives to business objectives.

5. How do you manage conflicts that happen during an internal audit?

The information might be very different from the existing processes in sold companies, resulting in some of the audit findings that bring disagreement. Effective auditors:

• Open the lines of communication to ease worries.
• Employ a negotiation focus for a common ground solution.
• Writing should remain objective and professional, not reliant on who is paying.

6. What’s in an Internal Audit Plan?

An audit plan includes:

• Objectives and scope.
• Resources and timeline.
• Audit methodology and data collection methods.
• Key risks and control testing.

Employers want to see candidates understand the importance of a well-planned audit so this is a common internal audit interview question.

7. What do statutory auditors look for when reviewing internal audit reports?

For this you can refer to the following answer. But also make sure to study SA 610 for this. This will help you develop a better understanding of this topic. Statutory auditors assess:

• Independence and Objectivity of Internal Auditors
• The skill level of the internal audit team.
• Quality of documentation and audit reports
• The adequacy of internal controls and risk management frameworks

Hence, this clarity will be helpful in your internal audit interview for answering questions.

8. What Are the Differences Between Statutory and Internal Audits?

Understanding these differences is crucial for answering internal audit interview questions.

9. What are Substantive Testing?

Substantive tests verify the financial statements by:

• Reviewing supporting documents like invoices and contracts.
• Performing analytical procedures to identify irregularities.
• Recalculating transactions to ensure accuracy.

You will be asked to describe how you use substantive testing in audits in response to internal audit interview questions.

10. What is vouching? How is it used in the auditing function?

Think of vouching as the Sherlock Holmes part of auditing.
It’s not just flipping through invoices and stamping “checked” on them. Nope. It’s a full-on investigation.
At its core, vouching means the auditor is verifying whether every transaction recorded in the books actually happened, and that it happened for a valid reason. In simple words—“Jo likha hai, kya woh sach mein hua bhi tha?”

So, what does vouching include?

• Checking supporting documents – bills, receipts, vouchers, bank statements…basically anything that proves the transaction happened.
• Verifying date, amount, and authority – Is the amount matching? Was the payment authorized? Was the transaction made within the correct accounting period?
• Looking out for fakes – Yes, fake invoices and bogus entries exist, and vouching helps catch those red flags before they become full-blown scandals.
• Cross-checking with books – Entries in ledgers and journals must align with the physical proof. No jugaad allowed here.

11. What are the key qualities of an internal auditor?

Internal auditors have:

• Strong analytical and problem-solving skills.
• Ethical integrity and independence.
• An internal auditor must enjoy independent status at all times. But he must closely associate himself with the management to identify loopholes and improve processes
• Attention to detail and a process improvement mindset.
• Good communication and negotiation skills.

These are often asked in internal audit interview questions.

12. How do you detect fraud in reimbursements?

Reimbursement expenses - the perfect spot to sneak in a little “chai-paani” if no one's watching. But guess what? Auditors are watching.
So how do you catch fraud in reimbursement claims? It’s not rocket science, but it is smart auditing.

Step-by-Step on Catching Reimbursement Frauds:

• a. Scrutinize Every Bill.
  Zoom in, cross-check, and ask—
  Is the date even valid?
  Was this bill issued on a Sunday? Red flag.
  Same taxi bill submitted twice? Double check!
• b. Look for Personal Expenses Disguised as Official.
  “Client lunch” at a movie theatre? Really? Auditors must ensure the claimed expenses actually relate to the business and not a weekend getaway.
• c. Compare with Company Policies.
  Is the claim within the allowed limit? Did the employee take a business class flight when policy allows only economy? If yes, then welcome to Fraudistan.
• d. Identify Pattern Players.
  Some employees always have “emergency” cab rides. Or claim “food expenses” for the same amount every week. These repeat offenders love routine - auditors love catching them.
• e. Cross-verify with Attendance and Location.
  Claiming reimbursement for a hotel in Delhi while the person was marked present in Mumbai? Either they teleport… or they lie.
• f. Duplicate Claims = Busted.
  Same bill submitted under two heads—travel + client meeting? Nice try. But not nice enough.

Bonus Tip: Use data analytics or simple Excel filters. Group by employee name, sort by expense type, and the outliers will shine.

Fraud indicators are:

• Duplicate claims for the same expense.
• Falsified receipts and altered documents.
• Expenses submitted outside company policy.

Internal audit interview questions frequently touch on the subject of fraud detection; you must talk about your investigative methods.

13. What is the difference between vouching & verification?

Vouching vs Verification – They sound similar but trust me, they’re totally different.
Okay, let’s break it down. Both vouching and verification are like the Batman and Robin of auditing - but they’ve got different jobs.

Vouching

This is where the auditor becomes Sherlock Holmes. Vouching is all about checking transactions. “Salary paid ₹30,000” – okay, show me the proof. Salary sheet? Bank statement? Signature of the employee? Great!
It answers one big question: Did this transaction even happen, or is someone making things up?

Verification

Verification is more about checking assets and liabilities.
You’re not just asking “Did we buy this machinery?” You're asking: “Is this machine still lying in the factory?”, “Is it in good shape?”, “Are we showing its correct value in the books?”
It answers: Is this thing real, still around, and rightly valued?

Quick Recap:

• Vouching = Prove the transaction happened.
• Verification = Prove the asset exists and is fairly valued.

14. What is the difference between process & control?

Process vs Control – Not Twins, Just Cousins

Now, this is where most students mix things up. Yes, process and control work together, but they’re not the same.

Process – The “How Things Work” Manual

Think of a process like a daily routine.
Wake up → Brush teeth → Coffee → Class → Netflix.

Similarly, a business process could be: Purchase request → Manager approval → Vendor selection → Payment.
It’s the flow of work.

Control - is the Protective Shield

Controls are those smart checkpoints within the process that say - “Wait a second, are we sure this is right?” For example:

• Expenses above ₹1 lakh need CFO approval.
• Password must be changed every 30 days.

Controls don’t stop the process - they make sure it doesn’t go off-track.

In short:

• Process = What happens.
• Control = What ensures it happens right.

Auditing isn’t just ticking boxes. It’s like running a quality check on a system - figuring out what’s real, what’s working, and what needs fixing.

15. Difference between Top Down & Bottom Up Approach

Let’s say you're building a company or planning a group study session.
There are two ways to go about it: Top-Down (CEO vibes) or Bottom-Up (grassroots genius). Let’s decode both.

Top-Down Approach

Decisions come from the top management or leaders, and then it flows down to the rest of the team.

Where it’s used:

• Strategic planning
• Budgeting
• Policy-making
• Enterprise-level audits

Bottom-Up Approach

Here, the ideas, data, or feedback come from the base level, and then get compiled and passed upward for decisions.

Where it’s used:

• Operational audits
• Feedback-driven product development
• Risk assessment
• Process improvements

Both approaches are valid—it all depends on what you’re trying to achieve.

16. What is Internal Financial Control (IFC)?

IFC ensures:

• Operational efficiency and risk mitigation.
• Reliable financial reporting and regulatory compliance.
• Well-documented policies and accountability.

Many internal audit interview questions test candidates’ knowledge of IFC implementation.

17. Differentiate between ICFR & IFC

ICFR vs IFC – Same-Same but Actually Different.

The primary areas of distinction between Internal Financial Controls (IFC) and Internal Control over Financial Reporting (ICFR) are scope and focus.

IFC is a broad concept that encompasses all policies and practices implemented by an organization to guarantee the efficient and orderly conduct of business, asset protection, fraud and error prevention and detection, accuracy and completeness of accounting records, and compliance with relevant laws and regulations. It includes operational and compliance controls in addition to financial reporting, and management is in charge of creating, putting into practice, and upholding these controls.

Conversely, ICFR is a subset of IFC and is a more limited term. It is restricted to controls that are directly related to financial statement preparation and guaranteeing the correctness and dependability of financial reporting in compliance with relevant accounting standards. Section 143(3)(i) of the Companies Act, 2013 in India mandates that auditors report on the sufficiency and operational efficacy of ICFR, while management bears accountability and makes claims on IFC.

18. Chief audit executive has dual reporting to the board and the senior management. Why?

If you’ve heard that the Chief Audit Executive (CAE) reports to both the Board and Senior Management and thought, “Wait, isn’t that confusing?” — let’s clear it up.

Actually, it’s not confusion, it’s good governance.

Who Exactly Does the CAE Report To?

• Functionally → The Board / Audit Committee
• Administratively → Senior Management / CEO / CFO

Yep, two reporting lines. And there's a solid reason behind this.

Why Dual Reporting Exists:

• 1. Independence & Objectivity: If the CAE reports only to senior management, the whole “internal audit is independent” thing falls apart. That’s why functional reporting to the Board keeps the audit unbiased and credible.
• 2. Operational Support: But hey, auditors still need an office, a laptop, and maybe a coffee machine. That’s where administrative reporting to management comes in. They take care of budgets, day-to-day issues, etc.

The Board tells the CAE what to audit and ensures they have the freedom to do it right. Senior Management helps with how the work gets done (resources, support, etc.)

19. Explain Procure to Pay (P2P), Hire to Retire (H2R), Order to Cash (O2C)

If those three look like some secret code, don’t worry—you’re not alone. But in the world of internal audit, these are the big three processes you must know.

Let’s decode them one by one - and learn how to audit them like a pro.

1. P2P – Procure to Pay

The end-to-end procedure known as Procure to Pay (P2P) handles both the settlement of supplier payments and the acquisition of products or services. The process begins with determining the need and submitting a buy request. Next, a vendor is chosen, a purchase order is issued, the products or services are received, the invoice is verified, and the vendor is paid. P2P aims to eliminate duplicate or unauthorized payments, ensure timely purchase, appropriate authorization, and precise expenditure recording.

2. H2R – Hire to Retire

The term "hire to retire" (H2R) describes an organization's whole employment lifespan. Manpower planning and recruitment come first, then onboarding, payroll processing, performance management, statutory compliance, and employee benefits administration. Finally, resignation, termination, or retirement come last. Ensuring proper hiring, precise salary and benefit payments, adherence to labor rules, and appropriate settlement of employee dues upon termination are the goals of the H2R process.

3. O2C – Order to Cash

The business process that oversees the selling of products or services and the gathering of money from clients is known as order to cash, or O2C. Order receipt, credit assessment, order fulfillment, delivery of products or services, invoicing, and payment collection and receipt accounting are the first steps in the process. The O2C procedure seeks to provide prompt order fulfillment, precise revenue recognition, effective cash collection, and efficient receivables management.

In Short

• P2P = Buy smart, pay smarter
• H2R = Employees in, employees out—fairly and compliantly
• O2C = Don’t just sell—collect your cash too!

20. How do you audit cash and cash equivalents?

• Balances from the general ledger and bank statements should be reconciled.
• Physically verify cash on hand and review cash handling procedures.
• Assess internal controls over cash transactions.

Employers ask internal audit interview questions on cash auditing techniques.

21. Explain COSO Framework.

Internal control isn’t just about keeping things “under control.” It’s a structured system that helps an organization run better, stay compliant, and avoid fraud.

And the COSO framework?

It consists of five key components that every internal control system must have.

1. Control Environment – The Vibe Check

This is the foundation.
It's all about the tone at the top—leadership attitude, ethics, values, and the overall culture.

It Includes:

• Code of conduct
• Integrity & ethical values
• Management’s operating style
• Organizational structure
• Roles & responsibilities

If the bosses don’t care about controls, no one else will.

2. Risk Assessment – Spot the Trouble Before It Hits

Before you can control anything, you need to know what could go wrong.

Includes:

• Identifying risks
• Analyzing how bad the risks are
• Figuring out what might trigger them
• Understanding how fast they might hit

3. Control Activities – The Action Plan

These are the actual measures you put in place to tackle the risks.

It Includes:

• Approvals, authorizations
• Reconciliations
• Verifications
• Segregation of duties
• Physical controls

Think of these as the locks, alarms, and firewalls of your business process.

4. Information & Communication – The Messenger Service 📢

Even the best controls fail if people don’t know about them.

Includes:

• Sharing policies and procedures
• Timely reporting of issues
• Open channels between departments
• Communication with external parties

Controls must be known, not just shown.

5. Monitoring Activities – The Constant Watchdog

Set it and forget it? Nope. Controls need regular check-ups to see if they’re still working.

Includes:

• Ongoing evaluations
• Internal audits
• Reviews and follow-ups
• Corrective actions

Because even the best systems need a little maintenance.

COSO’s 5 Components

22. What is the Three Lines of Defense Model?

The Three Lines of Defense Model helps to clarify roles and responsibilities in risk management and control.

First Line: Operational management and internal controls.

Second Line: Risk management and compliance functions.

Third Line: Internal audit providing independent assurance.

This is a widely recognized model often included in internal audit interview questions.

23. Difference Between a Management Audit and an Operational Audit?

A management audit and an operational audit differ primarily in their goals and areas of focus.

Management Audit

A Management Audit is concerned with evaluating the overall performance, efficiency, and effectiveness of top management in achieving organisational goals. It examines management policies, decision-making processes, leadership quality, strategic planning, and how well management utilises resources to fulfil the company’s objectives. The purpose of a management audit is to assess whether management actions are aligned with organisational goals and to suggest improvements in managerial practices and governance.

Operational Audit

An Operational Audit, on the other hand, focuses on examining the efficiency, effectiveness, and economy of specific operations or processes within the organisation, such as procurement, production, sales, or payroll. It evaluates whether operational activities are being carried out in an optimal manner, identifies process gaps or inefficiencies, and recommends ways to improve productivity and cost control. While a management audit looks at the organisation from a strategic and leadership perspective, an operational audit concentrates on day-to-day processes and operational performance.

So, while management audit looks at “who’s driving the car and in which direction,” operational audit checks “how well the engine is running and if we’re wasting fuel.”