An external audit refers to an independent examination of a company’s financial statements and underlying records performed by a qualified auditor.
Audit Process:
- Auditors assess risk, design procedures to obtain reasonable assurance on financial statement fairness, and issue an opinion.
- They evaluate internal controls, verify account balances through sampling techniques, and assess compliance with regulations.
Example Role:
By diligently investigating irregular variances flagged in inventory counts, the external auditor from a Big Four firm uncovered fraud that may have otherwise gone undetected.
Significance:
Relying on objective outsiders boosts confidence for stakeholders in published financial reports and minimizes potential for management deception or bias. Regulators also depend on audits to safeguard investor interests.
Key Role:
External audits enhance transparency through an unbiased assessment of an organization’s financial health, which is critical for informed decision making.