What is the Purpose of External Audit for Business?

An external audit is a critical component of any business. The purpose of an external audit services is to ensure that a company’s financial statements are accurate, complete, and current. The report should establish whether the financial statements are “true” and “fair” and identify whether changes to the organization’s operations, legal issues, or records affected those statements. The scope of an external auditor’s work is broad and varies depending on the company.

Detect and prevent potentially fraudulent financial records:

The main charge of an external auditor is to detect and prevent potentially fraudulent financial records. According to a 2008 study by the Committee of Sponsoring Organizations of the Tread way Commission, 87 percent of the companies accused of financial fraud had less than $100 million in assets and revenues. The fraud most often occurs in a company in distress or among high-level executives. More than 50 percent of all fraudulent acts involved overstatement of revenue or assets.

Reporting phase:

The main part of an external audit is the reporting phase. During this phase, the auditors visit the organization and examine its procedures for recording and processing data. If necessary, auditors may re-create documents for accuracy. Internal auditors may also be required to submit additional files for their report, and they may ask questions about the conclusions drawn during the audit. This phase of an external audit is an essential part of any business.

Ensuring compliance with applicable laws and regulations:

An external auditor can identify fraud within a company or on the client. An audit report is a valuable tool for ensuring compliance with applicable laws and regulations. It is important to know that the external auditor is accountable to the entity’s shareholders, which makes their opinion of its internal controls important. Therefore, the auditor’s qualifications can have a serious effect on the management’s actions.

The major responsibility of an external auditor is to detect and investigate potentially fraudulent financial records. According to the commission’s study, most companies charged with financial fraud were less than $100 million in revenue and assets. They were often top-level executives, so they were so vulnerable to fraud. Moreover, fraud is often a key component of an external audit. This is why the task of the auditor is so important for the business.