An external audit is an examination that is conducted by an independent accountant. This type of audit is most commonly intended to result in a certification of the financial statements of an entity. This certification is required by certain investors and lenders, and for all publicly-held businesses.
An external auditor performs an audit, in accordance with specific laws or rules, of the financial statements of a company, government entity, other legal entity, or organization, and is independent of the entity being audited
The objectives of an external audit are to determine:
- The accuracy and completeness of the client’s accounting records;
- Whether the client’s accounting records have been prepared in accordance with the applicable accounting framework; and IFRS
- Whether the client’s financial statements present fairly its results and financial position.
There are other types of external audits that may be targeted at specific issues concerning a client’s accounting records, such as an examination that searches for the existence of fraud.
PURPOSE OF EXTERNAL AUDIT
An external audit process ensures that a company’s internal controls, processes, guidelines and policies are adequate, effective and in compliance with governmental requirements, industry standards and company policies. This type of audit also ensures that reporting mechanisms prevent errors in financial statements.
WHAT HAPPENS IN EXTERNAL AUDIT
An external audit occurs once a year and focuses on the company’s performance and compliance. Accounting records are commonly examined in an external audit to make sure no errors exist in the financial statement, which is important for investors and regulatory requirements.