Internal Auditor’s Role Throughout The Mergers & Acquisitions (M&A) Stages

Mergers and acquisitions (M&A) are significant transactions that affect not only the organizations involved, but also their numerous stakeholders. Mergers and acquisitions can make companies stronger by expanding their consumer base, reducing marketplace competition and creating value that is greater than each company offers individually. Yet, losing the focus on the desired objectives, failing to devise a concrete plan with appropriate control, and lack of establishing necessary integration processes can lead to the failure of any M&A deal.

The high rate of M&A failures indicates that organizations frequently underestimate the importance of risk management in M&A decision-making. By conducting due diligence and providing expertise in business process integration, the internal audit function can improve the quality of risk management throughout the M&A process. With investors, regulators, and the surveillance media, internal auditors are projected to play a more prominent role in the risk management processes. At the same time, internal audit can enhance its reputation as a value provider within the organization, as well as preventing potential negative outcomes throughout the M&A process.

Internal auditor’s involvement in the mergers and acquisitions key stages and life cycle includes M&A strategy and target screening, due diligence, and integration.

Strategy stage :

Internal auditors should be involved and have clear visibility as an advisor at this early stage. Somewhile, management tends to be unrealistic, overly optimistic, or too narrow in their thinking. However, internal auditors can objectively assist in determining what events or circumstances could cause an obstacle in order to meet corporate objectives and positive synergies identified as part of the M&A.

Questions audit committees can ask regarding management's M&A processes:

  • What financial criteria are management using to identify potential targets?

  • Who within management is taking the lead in confirming that the acquisition is consistent with the company's overall growth and business strategy, and what is their experience with M&A?

  • Does management have well-developed financial due diligence and post-merger integration processes in place, as well as qualified advisors to execute them?

  • What are the predetermined financial metrics that management will use to assess whether the acquisition has met projections for return on investment?

Due diligence / acquisition stage :

Internal audit can ensure that the due diligence process has covered all key issues related to the financial, operational, and regulatory and compliance areas. Due diligence is often accomplished within a limited time frame, and top management often doesn’t consider major control issues or deficiencies associated with the target company. Furthermore, internal auditors are projected to evaluate the competency and independence of key process/control owners across the organization.

There are several key areas of focus within the due diligence process, which the audit committee should understand and assess to form a view on walk-away issues, needed changes to the offering price, extent for contractual protections and post-acquisition matters. The audit committee often provides critical oversight in areas such as risk analysis, internal controls, and even the basic financial information on which the terms are based. They are also capable of reviewing internal and external audit results to determine the organization's current issues. If management decides to accept the risk and does not take corrective action for a specific deficiency, it is critical that the acquiring organization understands the cost-benefit analysis performed and what other entity-level compensating controls are in place that give management confidence that material misstatements would be detected in a timely manner.

Integration Stage :

Internal auditors should be able to assist in ensuring that the integration of the acquired organization into the acquiring organization is effective and efficient. Internal audit could provide assurance about the effective management of critical third-party arrangements early in the integration process. M&A can result in service overlap and complicate existing contractual arrangements. Consider how the organization identified its critical third parties, performed due diligence, and how future ways of working will be appropriately managed with all risks clearly understood.

Once the integration has gained traction and work streams begin to be delivered, internal audit can assist in ensuring that "lessons learned" exercises and reporting are carried out, and that this feeds into the larger integration program and reporting where appropriate.

The internal audit function is evolving from its traditional oversight function to one that includes a wider spectrum of activities that add value to their organizations. Given the high-risk profile of these key transactions, the proactive involvement of internal audit before, during and after the merger, acquisition or divestiture can help management identify issues and opportunities related to the transaction that might not otherwise be addressed. Internal auditors also will need to be careful about managing their independence and objectivity in any role other than providing assurance in line with The Institute of Internal Auditors’ Standards. But they can provide invaluable support to senior management and act as key advisers throughout the M&A process.


Mergers and Acquisitions, Should Internal Audit Be Involved in Due Diligence? (2018, September 18). ISACA. Retrieved July 12, 2022, from

DOUNIS, N. P. (2009). International In-house Counsel Journal - The business risk of M&A activity and the role of internal audit function in the risk management process. International In-House Counsel Journal. Retrieved July 12, 2022, from

Bournet, G. (2020, September). Managing risk in M&A: The audit committee's involvement. PricewaterhouseCoopers (PwC). Retrieved July 12, 2022, from