Wondering how your company can benefit from an external audit? In this article, we discuss how external audit differs from internal audit and explain its purpose and essential steps. You will also learn how your business can benefit from using external audit services.
Internal Audit Vs. External Audit
An audit is the examination and verification of a company’s financial records to ensure that transactions are represented fairly and accurately. Performing an audit is an essential part of the life of any business, no matter its size or the type of industry because it helps determine the exact financial picture of the company and pinpoint any weaknesses and improvement suggestions.
There are two different types of audits – internal and external. The purpose of an internal audit is to assess the major risks facing the business and the effectiveness of the business in managing those risks, as well as the effectiveness of the control processes implemented by management.
They may also issue recommendations on improving the company’s systems and controls if they identify deficiencies in specific business areas.
Internal audits are performed by the company’s employees, and the final audit report is given directly to the company’s management and the board of directors. If a company does not have the in-house resources to examine and assess certain parts of its operations, it may outsource its internal audit services. The consultant auditors will use the specific standards of the company they are auditing in their work.
If we compare internal audit vs. external audit, we notice that they differ in the purpose, focus, and scope of work, but the main difference between them is in the concept of independence.
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The external auditors are appointed by the company’s shareholders and act independently to ensure an objective approach to the audit process.
External auditors express an opinion about the company’s financial condition and financial reporting risks. When performing an audit, they examine the company’s business accounts to find out whether they accurately and fairly represent its financial performance. The scope of their work is limited to financial statements, such as balance sheet, income statement, cash flow statement, a statement of changes in equity, and supplementary notes including a summary of significant accounting policies.
Purpose of External Audit
The purpose of an external audit is to form an independent opinion on the financial statements of an organization. External auditors examine financial reports to determine whether the financial statements taken as a whole show an accurate and fair view of the organization’s financial position at a given date. Besides, auditors’ objective is to verify that the financial statements have been prepared correctly according to national and international generally accepted accounting standards.
External auditors address their opinion about the financial statements/records that were examined to the shareholders of the company (referred to as the “audit report”). The external auditors may also report their findings in regards to the accounting system and internal controls to the senior management (directors, audit committee) of the audited entity in the form of a detailed report that includes their concerns regarding the accounting system and internal controls and recommendations on how to improve the company’s accounting procedures.
External Audit Process
The external audit process relies on evidence, analysis, conventions, and informed professional judgment. The process typically consists of 3 basic steps: planning, gathering evidence, and issuing a report.
- During the planning phase, the auditor creates an audit program where they identify and schedule audit procedures that will be carried out to gather the evidence.
- During the execution phase, evidence-gathering procedures are performed. They include observation, calculations, confirmation, inquiry, analysis, inspection, and comparison.
- After a thorough investigation, the external auditors submit their audit report comprising the financial statements and their objective opinion as to whether those financial statements present a true and fair view of the financial position of the company and its performance and comply with the relevant accounting standards and legal requirements.
External Audit for Your Business
The external audit is compulsory for all the companies registered in the UAE. Often the company registration and renewal authorities require financial statements including external audit report for the renewal of the company’s trade licence. The financial statements prepared in the UAE are required to comply with International Financial Reporting Standards (IFRS) and the applicable provisions of the UAE Federal Law. The external audit report is a significant document for the small, medium, and large-scale businesses that provides independent confirmation of such compliance.
It also enhances your financial credibility in the business marketplace. An externally audited set of financial statements is essential when you apply for loans and financial assistance from banks.
Besides, an audit is critical to the decision-making of any organization. It offers you a greater insight into the way your business functions and highlights areas for improvement to help your business continually grow. External auditors can identify deficiencies in the accounting systems or controls and provide you with recommendations on making your business more efficient and less prone to fraud or error.
Planning an external or internal audit for your business?
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External Audit Services: Learn What We Offer
Are you looking for external audit services? Have you already prepared financial statements or you require accounting to be carried out and financial statements to be prepared for your company? Beaufort Associates provides management consulting and advisory services in Dubai and the GCC region. We provide audit support services and help clients by arranging and assisting in the audit. We understand the rules and requirements and have contacts with external auditors – from international audit firms to the second and third tier audit firms that enable us to provide a one stop shop for your external audit requirements. Our goal is always to provide a smooth audit process for every client.
We communicate with the external auditors on behalf of the client company, obtain quotations and shortlist suitable audit firms, and arrange the preparation of financial information and the schedules the auditors require. We also generally assist auditors in having the audit completed and the audit report issued quickly within agreed time frames.
You can order audit support as a standalone service or together with accounting services. Our firm is also a trusted VAT registration consultant and offers assistance with accounting outsourcing. With many years of experience in management consulting and accounting, we would like to become your trusted business partners with whom you can discuss, with confidence, your business issues and strategies.