Reasons why External Audit is important to a Business

Contents hide

2 Why is an External Audit important to a Business?

We all know the benefits of audit of a company and the management of a company can choose between two types of audit namely External Audit and Internal Audit. Both the audits can be very helpful for the business and will help the management to understand the workings of the company and assist in devising a viable strategy according to it.

In this article, we will try to understand what an external audit really means for a company and what are the advantages to a business of conducting an external audit.

External Audit: Meaning

External Audit can be understood as the process in which all the books of accounts of the company are examined by a third party. The professional studies all the financial books of the company with the aim of finding out the present condition of the business and also finding that no fraudulent or criminal activity is being done in the business.

These records can also be made public which will allow the investors of the company to have all the necessary financial data of the company to make an investment decision. This financial data of the company can be prepared via the accounting function. The final audit report provides a clear and bigger picture of the company.

The person who conducts an external audit in the company is known as the external auditor and it is usually a third party that has no stakes in the business. A third party is chosen for the external audit as then the chances of sabotaging the audit are way less.

Why is an External Audit important to a Business?

There are many different benefits of conducting an external audit for a business. Some of the benefits are explained below:

An External Audit helps in understanding the bigger picture

After auditing the auditor provides all the details of the business in the report. This report is very beneficial for the business investors as well as the management of the company. By understanding the bigger financial picture the investors of the company will be able to make informed decisions whereas the management will be in a better position to decide which functions of the business to act upon.

External Audit helps in ensuring compliance

After conducting the examination of all the various functions of the business, the management can make sure that all the rules and regulations are being followed by the business. If these rules are not followed, the business can face fines, penalties and various other problems in the future.

The Audit reports help the management in preparing a benchmark

A business can get ahead of its previous position by working on itself but to do that the business has to first understand what its current scenario is so that it can overtake it in the future. External Audit assists in this situation by providing a snapshot of the business and allowing the management to set a benchmark for itself.

The External Audit allows us to see different perspectives

Every person has a different perspective but it is necessary for everyone to understand different perspectives so that they can find new solutions to their problems. This also applies to businesses. A business needs to understand different perspectives so that it can tackle the business problems in a better way. Also, the different perspectives can help the business to expand into new product segments or into new markets.

Auditing encourages people to invest in the business

With all the financial information of the company in the audit report, the investors of the company have all the necessary data to make an informed decision. This allows more investors to invest in the company or to change their investments.

External Audit helps in waste reduction

Wastage is a big problem in every business. An external audit will examine all the functions of the business and this will tell the management where the maximum wastage of resources is happening. When the wastage is stopped the company is bound to become profitable.

Thus we can see that there are many advantages of conducting an external audit of the business. But the management should take care that the external audit is conducted by reputed and professional firms.

If you are looking for such a firm in the United Arab Emirates then you must have a look at the services provided by JAXA Chartered Accountants. Jaxa also provides many other services which will ensure that the business performs its best. For more details about the services provided by JAXA, please Contact Us. We will be happy to help.