The Role of External Audit
There are two main types of audit widely used in modern corporations – internal and external audit. The main goal is the same – to express the opinion on the company’s activities and performance data, but the final results may differ depending on the personal and professional characteristics of the auditor.
The internal auditors which work for the company are very likely to produce favourable assessments as they are not willing to disappoint their management or even try to exaggerate the company’s success. Besides these facts, internal auditors often make misstatements and errors that make their conclusions unreliable and inadequate. That is why it is very important for a company to find an independent external auditor that will perform an audit of the company’s financial statements and present an unbiased and relevant evaluation of the company’s activities, processes and assets.
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The external auditors nowadays provide not only audit services, but also a wide range of other services, which include reviews of the company’s financial statements and compilation. The main task of the first one is to check the general ledger and make all necessary inquiries of management. Compilation is used to make sure that the company’s financial statements are true, fair and free of various errors and mistaken conclusions. The external audit helps to discover the real company’s market and financial position and gives the ground for further managerial decisions. This type of audit is obligatory for public companies that sell their shares on the stock exchange and must be fulfilled early or even quarterly.
The independence of external auditors is crucial in their activity. There are strict laws in Europe and the United States that prohibit the auditor from owning a stake in public clients and severely limit the types of non-audit services they can provide. The external auditors do not specialize on finding the tracks of different fraudulent activities, but if they find the information about such operations in the process of auditing, they prepare a special report for the management, which presents further details on the case and give recommendations how to avoid such situations in future. External audit is often used to find the weak points of the organization and its financial activities and helps to prevent dangerous crisis situations.
In the United States, certified public accountants are the only authorized non-governmental type of external auditors who may perform audits and attestations on an entity's financial statements and provide reports on such audits for public review. In the UK, Canada and other Commonwealth nations Chartered Accountants and Certified General Accountants have served this role.
The role of external audit is very important as it gives the company a fresh and independent look on its activities and performance and helps to find and eliminate various errors and misstatements, omitted by internal auditors that are often less qualified and dependant on the manager’s opinion. Of course, the price of the external auditor’s services is very high, but if a company wants to have a reliable data base for making the decisions, it should definitely turn to an auditing company.
