What is An External Audit
An external audit is a method for examining a company’s financial statements by an independent resource. External audits are a legal requirement in the majority of cases. During an external audit, the aim is to evaluate the condition and operations of a business. A registered accounting firm is responsible for performing this evaluation, which may occur in the context of an annual review or during a special review. The board of trustees or the annual general meeting (AGM) will choose the auditors. It is imperative that the auditors are independent, meaning they cannot be personally linked to the business, nor may they have been involved in preparing the accounting records being audited. As well as independence, an external auditor must hold the relevant professional qualifications and his or her reputation should also be considered when choosing them and how much the auditors will charge for performing the audit, and their experience auditing similar businesses. Auditors are entitled to access books of accounts to gather information and provide their opinions through audit reports.
External Audit vs Internal Audit
Internal and external audits don’t contradict each other. On the contrary, they complement one another. A work of internal auditing can be used by the external auditor if it thinks it is suitable, however it does not reduce the external auditor’s responsibility. The Internal Audit function ensures that the business is operating efficiently and acts as a check on the activities of the business. However, external auditors are completely independent whereby a third party is brought in to complete the audit.These audits ensure that the annual financial reports are accurate and complete.
External Auditor’s Role:
Auditing the general ledger of a company, as well as making any other necessary inquiries from the company’s management, is the principal responsibility of external auditors. The analysis provides a real-time picture of the company’s market position and financial condition, and also provides the basis for managerial decisions. It is important for external auditors to check the validity of financial records in order to determine whether there has been any misstatement in the company’s record as a result of fraud, errors, or embezzlement. Therefore, it leads to an increase in the credibility and perceived authenticity of a company’s financial statements. It may be impossible for the owner of the company to make appropriate decisions if there are errors in the accounting process. Audits help mitigate this problem to a great extent since the procedures used in an audit are designed in a way that they enable you to detect errors in the system and other fraudulent activities. Accounting transactions are also recorded according to generally accepted accounting principles in audits. Business owners can benefit from it by covering themselves when it comes to adhering to the various rules and regulations that the entity needs to follow.
Significance of External Audit:
- In an external audit, the main objective is to determine whether the client’s accounting records are complete and accurate, check that the records are prepared according to the accounting framework applicable to the client and to ensure that the financial statements represent the client’s true and fair financial position and results. The management cannot deny a statutory auditor access to the company’s financial records, books, or information related to those matters.
- Having conducted the audit and collected necessary information, the external auditor should then submit his audit report to the parties concerned in writing, stating his view of the true and fair view of the financial statements provided to him.
- Mostly, an external audit serves to certify a company’s financial statements. This certification is often needed by investors and lenders. Furthermore, all publicly traded companies must have their financial statements audited and obtain this certification to sell their shares to the public.
- A thorough external audit ensures that the company’s internal controls, policies, procedures, guidelines, effective, and in compliance with government regulations, industry standards, and company policies. Reporting mechanisms are also audited to ensure that errors are prevented in financial reports.
TAXOCRATE’S Audit & Assurance Services:
Taxocrate (Pvt) Ltd offers audit and assurance services to its clients. The purpose of audits is to provide assurance and advice to management and business process owners on how controls within the organization are functioning; to ensure that relevant control objectives are being met. Additionally, it pinpoints areas where control systems may be inadequate, identifies the risks that may be associated with such deficiencies, and gives management advice on how to remedy these shortcomings. Moreover, our services include Company Registration, Firm Registration, Trademark Registration, Income Tax & Sales Tax Filing. In the comment section below, please leave any questions you have about the above-mentioned services.
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