6 Advantages of External Audit in 2020

Aug 2019

An audit can be a costly and time-intensive affair, which is why many businessmen and entrepreneurs have the wrong perception about it. By conducting the review in-house, a company is under no legal obligation to evaluate its books of accounts by a third party and provide the results to the public, but an external audit has its own set of advantages for a company.

An external audit can be understood as the examination of the books of accounts of a company which was prepared by the company accountant or the accounts department. This analysis of the books is done by a third party which has nothing to do with the company. This would lead to an impartial and scrutiny of the books of accounts. This audit is performed at regular intervals or the behest of the management of the company. The main aim of conducting an external audit is to figure out that all the records of the company are genuine and accurate. This would instil a sense of trust among the present shareholders and potential investors.

The external auditor must deliver an impartial review of the company and also make sure that no wrong or unlawful activity is being conducted in the company. Also, he should not be biased towards the company in any way possible. An auditor conducting an internal audit also has similar responsibilities but tries to focus more on the inner workings and the various processes of the company.

Let us now have a look at the various advantages of conducting an audit.

Advantages of an External Audit

An external audit is usually conducted by a third person and thus is very unbiased. A company can avail many benefits while conducting an external audit. Some of these benefits are:

1.Provides a Comprehensive Report

An external audit provides an overview of the business process and establishes that the information in the books of accounts is correct and accurate. The auditor presents an audit report which will simplify and present all the workings of the company which would help the management to take remedial actions regarding any slow or faulty process. Furthermore, the report would help in providing a complete understanding of the workings and the various departments of the business. 

Furthermore, an external audit provides business owners with the opportunity to work closely with external auditors to look at their accounting process with a critical eye and work on making improvements.

2.Surety of Compliance

An auditor sees to it that the books of accounts are made according to the rules and regulations of the concerned authority. Since a financial audit is conducted at regular intervals, it helps in keeping the accounts department at par with the stated rules and regulations. The external auditor will also make sure that the accountants of the company are updated with any new regulation of the government or the authority concerned.

3.A Different Perspective

As the external auditor is a separate third party and has no relations to the company whatsoever, he would be unbiased towards the company and would present his reports and the corresponding views in such manner. The purpose of the auditor is to minimize the wastage in business and increase its profitability. 

4.Waste Reduction

As the audit will streamline all the process, there would be fewer chances of wastage of both time and resources. With a detailed report, management can adequately focus and uplift the department where most of the work needs to be done. This would help the profitability as the business would have access to a more significant number of employees and resources and would also tackle the problem of the disguised unemployment in the company.

5.Brings in Investors

As the audit report will provide a detailed and accurate description of all the past and present works of the company, an investor can take a better decision regarding investment in the company. The investor would scrutinize the audit report, and if after that he feels that the company is on the path of profitability and investing in the company would be a right decision then he can invest in the business. Thus, it would simplify the decision-making process of a potential investor.

6.Identifies Weakness

After properly scrutinizing the audit report, the management of the company can decide if any of the processes needs tweaking. This would help in understanding the weakness in the process and the management will take remedial measures accordingly.

These are the advantages that a company may avail after conducting an external audit. There may be many more benefits of conducting the audit but these are the most important ones. Due to these benefits, it is very essential for a company to avail the services of a firm which would understand the workings of the company and would provide solutions accordingly.

If you are looking for a professional and reputable auditing company in UAE, then do consider availing the services of “JAXA”. Here, we provide you with a range of Auditing services according to the need of the business such as statutory audit, Due diligence audit, etc. We also offer various other services such as TAX, VAT, Cash flow and Forecasting services etc. For more details on the services we provide do contact us – we would be happy to help.