documentclass{article}

begin{document}
{tracingmacros =1 ä }
end{document}

Ã->UTFviii@two@octets Ã

UTFviii@two@octets #1#2->expandafter UTFviii@defined csname u8:#1string #2
endcsname
#1<-Ã
#2<-¤

UTFviii@defined #1->ifx #1relax if relax expandafter UTFviii@checkseq s
tring #1relax relax UTFviii@undefined@err {#1}else PackageError {inputenc}
{Invalid UTF-8 byte sequence}UTFviii@invalid@help fi else expandafter #1fi

#1<-u8:ä

u8:ä ->IeC {"a}