6 minutes
An audit can be a costly and time-intensive affair, which is why many businessmen and entrepreneurs have the wrong perception about it. Many people feel that by conducting an External audit they are wasting the time and resources of the company but this could not be farther from the truth. When the review of a company is done 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 management as well as the current and potential investors of the company.
An external audit can be understood as the examination of the books of accounts of a company. This account book is 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 impartial scrutiny of the books of accounts. This audit is performed at regular intervals or at 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 provide transparency in the information of the company which will in turn 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 much unbiased. A company can avail of 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 of 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 a 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 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 make 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 the 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.
7. Independent Assessment of the Company provides Increased Credibility
As the audit is performed by an independent third party, there is no bias of the auditor towards the company. This means that the audit report will consist only of the correct facts and figures about the company. This will help in getting hold of and curbing any fraudulent business activity which is being conducted in the company and will also help increase profitability.
8. Evaluation of the Internal Processes of the Company
As the internal auditor is a part of the company, he cannot openly evaluate and the internal workings of the business. An external auditor has a better chance to adequately evaluate all the internal workings of the business and provide a truthful assessment of them. This will help the management in creating new and better strategies for the future and will also enhance the efficiency of the business.
9. Better Quality of Audit
Many of the internal auditors may not be well versed with the current changes in the business environment and can leave essential information out of the auditing report. The internal auditor is also very close to the business working and can also leave out certain information intentionally, which can affect the profitability of the business. Such instances are not possible if an external auditor is hired to conduct the auditing of a business.
10. Provides Confidence to Current and Prospective Shareholders
By hiring an external auditor, the company strives to provide correct and accurate information to the management as well as the shareholders of the company. This will be very helpful to the shareholders, and they will be able to take a calculated and informed decision. It will also ensure that the company will keep the best interest of the shareholders in mind while taking any business decision.
These are the advantages that a company may avail of 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 that would understand the workings of the company and would provide solutions accordingly.
If you are looking for a professional and reputable auditing services in UAE, then do consider availing of 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.
Read more on External Audit:
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External Audit Services in Dubai Silicon Oasis (DSO)
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Reasons why External Audit should not be avoided
Reasons why External Audit is important to a Business
What are the Objectives of an External Audit?
4 Pre-Requisites of an External Audit
5 Tips to Consider While Conducting the First External Audit
