External audits are independent evaluation and examination of the financial statements prepared by the organization. Usually external audits are conducted for statutory purpose. This audit provides accurate and reliable opinion about the produced financial statement by the organization. External audit firms conduct the auditing process in order to have fair communication with the shareholders or investors. External audit services will contribute more productivity to the organization as the audit reports will increase the confidence and impressions about the company.
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External audit services are generously preferred by companies with more commitments to investors and creditors. External audit reports always add on to the reputation of the establishment.
Purpose of external audit
- To review the company accounts to show that its accurate and up to the set policies and regulations
- To confirm on that all the accounting records follow the standard.
- To review and clarify the financial statements of the organization, to provide a certified audit report.
- To detect any fraudulent or suspicious activity in the organization
External auditing process:
External auditing firm will typically requests documents listed on an audit preliminary checklist with the organization. It may include a copy of the previous audit report, original bank statements, receipts and ledgers. The auditor will request organizational charts and other supporting documents to have a fair auditing process.
The external auditor will frame a proper audit plan after proper planning. Estimation of auditing time and challenges will be done during planning phase.
Up on scheduling a meeting with senior management auditor will explain the auditing requirement and necessity of the process. Audit time and schedules will be discussed with the managers and supervisors. This will help to move with the external audit services easily.
With reference to the information gathered from the open meeting, the auditor uses it to finalize the audit plan. Fieldwork is then conducted by speaking to staff members and reviewing procedures and processes. Organizational policies and procedures will be analyzed to set the proper auditing. Auditor will evaluate internal controls to measure the adequacy.
Based on the external auditing, the auditor will prepare a report. This report will contain mathematical errors, posting problems, payments authorized but not paid and other discrepancies; other audit concerns are also listed. Each and every findings will be enlisted in th report along with the recommended solutions.
After the preparation of audit reports, auditor will plan an interactive session with the organizational delegates, to demonstrate his findings. The auditor solicits a response from management that indicates if they agrees or disagrees with errors or issues in the report. At the closing meeting, all parties involved will discuss the report and seek management responses.
Benefits of external audit
External audit services will help to grow the confidence and acceptability of the organization among investors or shareholders. External audit reports are considered as the certificate of existence. A positive external audit report will add on to the name and fame of the organization where as any negative reports may question the credibility or existence of the firm.
- External auditing does not have any influence from the organization. An external auditing report will be always impartial and thereby it will be a most trustworthy statement.
- External audit will validate the situations noted in internal auditing.
- The major objective of the external audit is to keep your organization compliant.
- External auditing will rectify all irregularities in the organization.
- External audit will help the organization to run along with financial planning trends and strategies.
- External auditors are more productive, as they are completely dedicated towards the sole process of audit.