External audit is a routine check of records and/or procedures performed by the certified auditors who are not the part of the company to be audited. It helps both the company and government to check accounting documents. An external audit can be conducted voluntarily or non-voluntarily by the outsider. The external audit is prepared to check the accuracy of statements and an organization’s financial standing.
An external auditor is a professional, independent third party that performs an unbiased review of the financial records of a certain company. The auditor must evaluate the organization’s records, including payroll, purchasing records and accounting. He/she also looks at the financial investments and organizations loan structure to identify any irregularities.
External Audit Process
An external audit comprises the following stages:
1. Appointing an Auditor
One needs to identify an independent auditor who is not working for the organization which requires auditing. Shareholders will choose and appoint auditors at the general meeting. Normally, auditors are chosen according to their qualification, reputation and skills.
2. Accepting the Project
In this stage, the auditor sends a confirmation on acceptance of the given project. He or she will be informed of the objective, scope and the expected responsibilities throughout the project.
3. Audit Program
The actual audit process takes place at this stage. The auditor accumulates, assesses and interprets the data of the organization’s activities. He/she studies the financial statements of the firm to recognize and assess risks that may have a negative impact on the organization’s performance and financial position.
4. Gathering Evidence
External auditors have all the right to obtain any evidence to prepare an error-free audit report. This may include checking the accounting reports, confirming compliance with laws and policies, and cross-checking company assets.
Once the investigation is done, the auditor submits one’s audit report and articulates one’s objective and opinion. The overall outcome of the audit is stated in the audit report. The outcome and findings of an audit can strongly affect the reputation of a company. The company may face serious consequences if the conclusion about debts, payments and tax responsibilities do not match the statements prepared by the organization.
Need for External Audit in Dubai, UAE
External audit is compulsory for all the companies registered in the UAE. The mandatory compliance with International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) has made the external audit report a significant document. The external audit report acts as a definitive financial document at the time of license renewal, getting a loan, etc. The other benefits of an audit report are:
1. Unbiased Expert Suggestions
External auditors are trained and certified professionals to evaluate and improve the business process to reduce the risks caused by improper financial data. As they are not related to the organization, there is an element of impartiality to the audit report.
A small business owner may not have thorough knowledge of accounting. They prepare simple accounting information which is later reviewed by the external auditor. The auditor checks the information and provide insights on its reliability and validity. Accurate and valid accounting information can help business owners secure loans from lenders and investors.
3. Error Checking
An external audit helps an organization identify errors in its financial statements. Professional auditors recommend corrective solutions to any errors found in financial statements.
An external audit report ensures for the stakeholders that the financial data shows a true and fair view. It also enhances the reliability and credibility of the organization.
JAXA External Audit Services in Dubai, UAE
- Analysis of business performance against predetermined management objectives
- Examining the accounting records and checking other evidence supporting financial statements
- Assessment of business risks and providing the relative suggestions
JAXA is a financial consultant in Dubai offering a wide range of business services, including accounting, auditing, software consultancy, and management. We have been providing the best audit services in Dubai and other areas as well. At JAXA, we follow precise and proven approach to ensure that every item requiring investigation and verification of financial records is properly substantiated.
For external audit services in Dubai, contact us – we’d be glad to assist!
What is the difference between internal and external audit?
Internal audit is performed by the auditors who are appointed by the company while external audit is performed by the third-party auditors appointed by shareholders.
Why do we need an external audit report in Dubai?
An external audit report is very useful in free zones and it is also required during the loan sanction by banks in the UAE.
What is IFRS?
IFRS stands for International Financial Reporting Standards. It is an international accounting framework followed by 120 countries in logging accounting information.