Audit services are essential to establish credibility and build reputation – critically important assets in a global economy undermined by business scandals on multiple continents. Companies that successfully address audit issues improve the quality of their financial reporting and stand to gain credibility internationally with leading sources of capital.
Given the importance of audit services, many senior executives and audit committees look to Crowe Global member firms for efficient procedures, the value of their work, and personal service. Your organization stands to gain in multiple areas - reputation, insight, service, and cost - by finding experienced auditors who truly value your business.
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An external audit is basically an examination on the client’s financial statements that is conducted by an independent auditing firm. This type of audit is most commonly intended to result in an auditors’ report providing assurance on the client’s financial statements. This report is required by certain investors, lenders, authorities, and for all publicly-held businesses.
The objectives of an external audit are to determine:
+ The accuracy and completeness of the client's accounting records;
+ Whether the client's accounting records have been prepared in accordance with the applicable accounting framework; and
+ Whether the client's financial statements present fairly its results and financial position.
There are other types of external audits that may be targeted at specific issues concerning a client's accounting records, such as an examination that searches for the existence of fraud.
Although they share some characteristics, internal and external audits have some differences, in terms of appointment, objectives, and responsibility.
Internal audits evaluate and improve the effectiveness of governance, risk management and control processes. They are reported to the company’s board and senior management within the organisations governance structure.
External audits on the other hand are normally reported to shareholders or members outside the organisations governance structure. These are done to add credibility and reliability to financial reports from the organisation to its stakeholders.
Moreover, internal auditors deal with issues that are fundamentally important to the survival and prosperity of any organisation. Unlike external auditors, they look beyond financial risks and statements to consider wider issues such as the organisation’s reputation, growth, its impact on the environment, and the way it treats its employees.
We know how nerve-wracking an external audit can be for our clients. The compulsory nature of external audits often makes them seem like a test of a company’s operations and integrity – having something like this hanging over a business can easily bring about tension internally. However, we believe that it’s all about perspective. While the results of an audit can indeed hold bad news, an external audit holds a hidden added value – it offers you the opportunity to improve the running of your business.
So, what are the benefits of external audit?
An audit assures company directors who are not involved in the accounting functions on a day-to-day basis that the business is running in accordance with the information they are receiving, and helps reduce the scope for fraud and poor accounting.
So, not only does an audit enhance the credibility and reliability of the figures being submitted to various stakeholders (shareholders, employees, customers, suppliers, investors and tax authorities), but it also provides assurance to shareholders that the financial figures show a true and fair view.
Provides validity of the accounting process
An external audit provides an objective overview of a business’ accounting process. By giving business owners insight on the accuracy and validity of their company’s accounting information, business owners who do not have an in-depth understanding of accounting principles are able to better grasp the financial situation of their business.
Furthermore, an external audit provides business owners and their accounting teams with the opportunity to work closely with external auditors to look at their accounting process with a critical eye and work on making improvements.
Errors in the accounting process may prohibit business owners from making the best decisions. Audit procedures are designed to detect errors in the system and fraudulent activity. External audits also ensure that the recording of the financial transactions is according to generally accepted accounting principles (GAAP). This essentially helps business owners cover their back when it comes to following the many rules and regulations that come with accounting within a registered entity.
Identifies weaknesses internally (and suggests improvements)
Having weaknesses within your internal structure is inevitable – what matters is how you tackle them. Some companies prefer to sweep their weaknesses under the rug and continue to operate with blinders on. However, business owners always have the option of taking an assertive approach by giving underperforming areas within their company the attention they’re due.
Since internal auditors cannot effectively critique their company’s internal processes because they form part of it, external auditors can observe the operations from the outside and recommend ways to promote efficiency and refine the accounting process and internal controls.
Audits are useful in the long term
- If owners are planning to sell their business in the foreseeable future, potential buyers will refer to audited financial statements as part of their decision-making process.
- Credit ratings may be affected if an audit has not taken place.
- Suppliers and banks may not be prepared to give the required credit limits without an audit.