The accounting audit is an important management tool that many entrepreneurs use to ensure the reliability of their business.
Of its two main forms, internal audit and external audit, this mechanism is one of the most effective ways to validate internal controls and financial statements, and consequently, detect fraud, operational errors, and a series of accounting problems.
However, only the external audit guarantees a significant degree of reliability for the market.
A company manager, if he wants to mitigate risks and guarantee credibility to his financial statements, must seek an external audit to be able to assure his partners and investors.
But do you know how this accounting process works? Do you understand its benefits? In this article, we will explain these and other doubts, in addition to stressing at all times the importance of external auditing within an organization.
What is an external audit?
An external audit is an accounting audit performed by an outsourced professional, designated specifically for this task. This process is done to verify the veracity of your financial statements.
The auditing and taxation service seeks to express an independent opinion on the reliability of a company’s financial statements and during the performance of the audit work errors or fraud may be detected, which will be communicated to the company’s management.
Without receiving internal influence from the organization, a third-party auditor can also more easily identify unproductive processes. This helps to improve the operations performed within your company.
How is an external audit performed?
The external audit consists of a list of procedures, some of which are relatively formal, that must be followed to ensure the degree of reliability that this accounting solution demands. See the steps to follow:
- Formal acceptance by the audited company;
- Offering ideal conditions for the external auditor to gather information and carry out its work;
- Risk assessment by the corporate auditing firm, in which the probability of misstatements in the financial statements is measured;
- Response to detected risks, dissecting each inconsistency to seek its origin;
- Collect evidence through ledgers, cash flows, statements, and other forms that may point to flaws in the financial statements;
- Issuance of the “audit report”, which can be positive or negative. It is a complete document that gathers the data found in the investigation and the conclusions obtained by the external auditor.
External audit plays a key role for organizations seeking to receive investments. If a company receives a positive opinion from the auditor on the financial statements, it will have its integrity formally attested.
This is a big draw for potential investors. If an entrepreneur wants to expand his activities, make his business grow, or open more company shares in the enterprise, it is essential to have an external audit.
But the importance of this management practice does not stop there: if a manager is experiencing inconsistencies in the company’s funds and financial statements and has the feeling that something may be wrong in the procedures, it may be time to hire an audit and accounting service.
And, as we have already said, nothing is safer and more reliable than having an external auditor investigate these possible inconsistencies. An entrepreneur seeking to implement a corporate governance culture must be aware of the benefits of this practice.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.