Reasons why External Audit should not be avoided
24

Aug 2021

The importance of auditing for a business is well known by everyone. Even though it is a time taking process, the risk to reward ratio is very high. But in spite of the benefits of auditing, many small businesses do not audit as they feel that the company is not that big and it will be a better option to spend the time in the development of the business instead of an audit.

This reasoning may be correct for some of the businesses but not all of them. To understand the business in a better way and to gauge the problem which is endured by the company in the present scenario, it is important for a company to conduct an audit.

A company can choose from two different types of audits namely internal audit and external audit. Both these audits have their own pros and cons. In this article, we will talk about what is external audit is and why a business should not skip an external audit.

What is External Audit?

An external audit can be explained as the analysis of all of the financial statements of the business. This analysis is done by an external third party. This will reduce the chances of any bias towards the business organization by the auditor and the chances of any fraud will be less. Also, the external audit will focus more on how the business copes with the external business environment.

The external auditor will provide a different perspective to the business which will help the business to become more profitable and will also help them to compete in a better manner in the market. All the problems current and potential will be mentioned by the auditor in the audit report and this report will also state the various possible solutions which can be applied by a business.

Why should External Audit not be avoided by a Business?

Any business should not avoid an external audit as it provides a number of benefits to the management. Below are mentioned some of the reasons which a business should not avoid an external audit. These reasons are as follows:

  1. Understand the business in a deeper fashion

An external audit will help the management to understand the different business activities which are performed in the business. Armed with the understanding of the business, the management will be able to better allocate the resources of the company and will also be able to give attention to the various selective activities individually. This will allow the company to work better and be more profitable.

  1. Helps the management in discovering errors

The external audit will help the business to gain knowledge about the errors in the accounting of the company. These errors can be then remedied so that the business can perform in the most optimum fashion. The external audit will also help in getting the knowledge of the potential risks which are faced by the business and will assist in finding out a solution for the upcoming problem.

  1. Assists in increasing the profitability of the company

After understanding the inner workings of the organization and the accounting errors being made in the business, the management can start working towards making the organization more profitable. The external audit can help the management to identify which particular departments are more beneficial for the business and where should they devote the resources of the company for maximum benefit.

  1. Helps gain funding

In order to conduct an external audit, the company should arrange all the necessary documents and these documents are also necessary while arranging for funding. With the quick availability of the documents, the management will be able to get the funding quickly. Also, the external audit will generate an audit report which will quickly tell the banks about the current condition of the business and will help in securing funds.

  1. Increases confidence of the investors

External audit of the company will suggest that the company is transparent meaning that it is not hiding any information. This transparency will help it gain the confidence of the investors both current and potential. An increase in investors will also increase the chances of the profitability of the company.

The above-mentioned reasons are not an exhaustive list of the benefits of external audit and can be populated further. To know more about the benefits of external audits feel free to Contact Us. The experts at JAXA Chartered Accountants will love to answer any query which you have.