The external audit is defined as when the independent auditors collect the financial records of the company and perform the task of examining the validity of financial records to find any misstatement in the records due to the fraudsters or error and the reporting the same to the stakeholders of the company.
The main goal of external auditing is the determination of the completeness and accuracy of the record of accounting of the company to make sure that the recordsare as per the accounting framework and to make sure that the financial statements of the company are fair and true. The external audit takes place as the legal requirement for the company.
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The External Audit Report
External audit report put forth the findings of the financial Statement and the level of the conformity of the company with the accepted accounting principles. Verification is made over a while for consistency.
The right presentation of the financial statement should be understood by the external auditor for reference of accounting principles used in the statements for acceptability. The right presentation of the financial statement will not be fraud-proof.
The external auditor should possess the responsibility for searching and identifying the errors and fraud according to the auditing process. Investors also have the responsibility for examining the report for the verification of the debt violation. Hence it gradually increases the authentication and the credibility towards the company.
In case, there are any errors or misstatements, or fraud in the accounting of the financial statement, it leads the investor to make decisions appropriate for the situation caused by the error.
The external audit report helps the investor to detect the error, record the accounts as per the regulations of the government, and to maintain the system of money flow in the company.
How to prepare for your external audit?
Understand the standards
The external audit report analysis and evaluates the company’s performance against the external standard. Hence one should take the appropriate time to examine the standard that you will compare to.
It will help the external audit to avoid decreasing the credibility of one by taking unnecessary action which is outside the scope of the investor.
Hence the general understanding is more important which helps you to manage the external audit more efficiently.
Identify the subject matter experts
No one can analyze the internal process than yourself. Depending upon the standards of yourself which you need to comply with, appoint your employee who has the best knowledge to help the external auditor for a better understanding and evaluating the financial statement.
Ensure that you evaluate the importance of the upcoming audit and have a better presentation of SME, Hence the auditor can provide knowledge and experience for the action of the preparation.
Allocate the resources to experts
The important role of the auditors is spending the time, energy, and effort the maintain the financial systems. Hence, they will be engaged with their work. It is important to allocate resources for the auditors to make the process easy and simple.
Determine your internal procedures.
Collect your SME’s and examine thoroughly for a better understating of the internal process which is relevant and controls the upcoming audit. For effective auditing ensure that there are no gaps between the intern procedure of the documents.
The documentation process is the important part that helps the auditing team to have a clear understanding of the company. It should also include all company-related policy documents, financial statements, accounting records, and processing artifacts.
Goals of external auditing
The important responsibility of external auditing is to verify the general ledger of the company and to have ensured conversation for the proper management of the company. It ensures the company determines the current market situation of the company and leads to the basis for the managerial decisions.
An external audit requires the certification of the financial statements of the company. The authenticity and the credibility of the company are depended upon the financial statement of the company.
Hence the external auditor should be more careful while examining the financial statement and should look for any misstatement or fraud for the betterment of the company.
Limitations of external audit
The auditing should be conducted by reviewing the all-sample data of the company but the auditor does not examine all the transactions of the company. Due to this error, the audit opinion of the financial statement does not provide the total assurance of the current market position of the company.
The expenses of conducting auditing are very high. The first to the final stage of this process is all done by a human. Hence it may have errors in the financial statement. This error can be avoided by auditors who possess accurate knowledge and experience.
Planning of auditing can be challenging, as the economic and financial pressures for corporates are increasing. Hence it is one of the main types of auditing where the auditors work over the accounting books, purchasing records, inventory, and other financial reports for the verification of the right financial situation of the company.
The auditors should perform the perfect auditing and submit it before the rightful persons. Auditing should also give a true and fair opinion on the company’s financial situation.
The authenticity and the credibility of financial statement provided by the external auditing are more because the auditing is done by the verified independent external auditor.