In a dynamic risk and regulatory landscape, internal audit is more critical—and more complex—than ever. Financial institutions must rely on both audits and compliance reviews to identify risk, reveal process gaps, and ensure adherence to compliance standards. While these two functions share common goals, there are key differences in their approach, scope, and purpose.
Let’s explore how audits differ from compliance reviews, why a strong internal audit is worth the investment, and how technology is transforming and streamlining the audit process.
Related: What is the Purpose of Auditing
Audit vs. Compliance Review
What’s the difference between an audit and a compliance review? While both require expertise and help surface systemic risks, there are key differences.
| Criteria | Audit | Compliance Review |
|
Independence |
Performed by an independent internal or external party | Conducted by the institution’s compliance department |
| Purpose | Objectively assesses the effectiveness and accuracy of processes | Monitors compliance with internal policies and regulatory requirements |
| Planning | Scheduled and planned in advance |
Scheduled or performed on an ad hoc/as-needed basis |
| Reporting | Reports delivered to senior management and/or the board |
Findings shared with department head; escalated to senior leadership if necessary |
| Findings Impact | Highlights deficiencies and recommends corrective actions | Helps ensure ongoing compliance and mitigate issues ahead of formal audits |
What’s an audit?
An audit is a formal process where an independent party objectively examines the effectiveness or accuracy of a process, report, or other metrics. Because they have no personal involvement in developing or executing the programs they audit, auditors can deliver unbiased findings and recommendations.
Whether an audit is performed internally or externally by a third party, it should outline issues and provide recommendations for corrective actions. Audits evaluate both financial and non-financial areas of an institution, including:
- Business continuity
- Compliance
- Credit
- IT and cybersecurity
- Finance
- Operations
- Third-party risk management
Auditors might examine transactions, activity logs, and risk assessments to ensure accuracy, completeness, and timeliness. They may also review financial and regulatory reports to determine if they were accurately completed and filed following the required standards.
Audits typically follow a set schedule or audit program, and the results are reported to the board.
Related: Should Your Internal Auditor Be a Subject Matter Expert?
What’s a compliance review?
A compliance review, also known as compliance monitoring or compliance testing, is the practice of conducting informal audits on current processes to determine whether individuals are following compliance requirements or if there are problems with a particular method.
While similar to audits, compliance reviews differ in several ways:
- Independence: Compliance reviews are not conducted independently. Instead, they are performed by the financial institution’s compliance department.
- Timing: They are conducted on a pre-established schedule or an ad hoc basis, whereas audits are typically planned and scheduled in advance.
- Reporting: Findings from compliance reviews are reported to the department head. If the issues identified are considered critical, they may be escalated to the board.
For example, a compliance review might involve looking at a sample of account opening documents to ensure that branch staff collected the necessary Bank Secrecy Act/anti-money laundering (BSA/AML) and Office of Foreign Assets Control (OFAC) information. Exercises like these help the compliance department assess the effectiveness of its policies and procedures, making adjustments as needed. When done well, it can lead to fewer findings during audits.
Download: Compliance Review Roadmap for Financial Institutions
Auditing guidelines
A proper audit follows established standards to ensure the audit is thorough, ethical, and objective. Some of the most well-known standards come from:
- The Auditing Standards Board of the American Institute of Certified Public Accountants (ASB of AICPA)
- The Institute of Internal Auditors (IIA)
- Public Company Accounting Oversight Board (PCOB)
- International Organization of Standardization (ISO)
For example, the ASB is responsible for “developing, updating and communicating comprehensive standards and practice guidance that enable practitioners to provide high-quality, objective audit and attestation services to non-issuers in an effective and efficient manner.” It maintains standards for SSAE 18 audits and the resulting SOC 1 and SOC 2 reports.
To ensure guidelines reflect the ever-changing audit risk environment, these organizations regularly update their standards. For example, the IIA recently updated its Global Internal Audit Standards (effective January 2025) to emphasize the importance of risk-based planning, cybersecurity, and continuous auditing. Moreover, the framework now requires internal audit functions to align with an organization’s goals and deliver real-time insights—or high-impact risk management best practices.
The bottom line: An audit must have systematic, independent, and clearly defined standards.
Related: Q&A: Understanding IT Audits at Financial Institutions
Why do audits matter?
Whether an audit is performed internally or externally, its value lies in its objectivity and independence.
Making sound decisions requires trustworthy, validated data. Auditors are independent fact-checkers — they help cut through the noise and provide bias-free insights. They’re not focused on the number of findings they uncover, though a good auditor will typically identify at least a few areas for improvement. Their goal is to identify issues, offer suggestions, and ultimately help provide a foundation for prudent risk management.
Related: Importance of Auditing or What Does Internal Audit Do
Don’t be fooled: A sales pitch is not an audit
To fully realize the benefits of an audit, organizations must invest in providing the tools, resources, and support for auditors to do their jobs effectively. Given that these resources come at a cost, FIs may be tempted to opt for a “free” audit.
Free audits typically aren’t comprehensive, independent, or conducted by credentialed professionals. Think of them as the free multi-point inspection at a car dealership — it’s designed to find something they can sell you.
A “free cyber audit” won’t assess your entire program, review your policies, or adhere to the most updated standards. It’s not built to evaluate your overall cyber maturity — it’s designed to uncover a problem that matches the vendor’s solution, whether that’s password management, data loss prevention, fraud prevention, or something else. Even if the findings are accurate, the review will likely be limited to areas the company can fix.
Related: What is AI Auditing and Why Does It Matter?
Making the most of internal auditing with technology
As the regulatory environment evolves and technologies such as generative artificial intelligence (GenAI) introduce new risks, internal auditors must manage more moving parts than ever. The good news is that, along with the growing risks and issues faced, the tools are becoming more effective and intelligent, making auditors' work more efficient.
From streamlining the auditing process to generating board-ready audit results, the right automated audit management software can save your FI time and employee resources while reducing risks and adhering to compliance requirements.
Want to learn more about tracking audit and exam findings?
Discover practices for managing findings, strategies to reduce them, and ways to use findings to strengthen overall risk management in our free whitepaper.
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