Whats importance of external auditing ?

Advantages of Audit: External

Identifies Weaknesses in Internal Control

Auditing Standard2, issued by the Public Company Accounting Oversight Board in2004, defines a material weakness in internal control as a “significant deficiency” or combination of deficiencies that increase the possibility of a material misrepresentation of financial information by a business. An external auditor is not only tasked with verifying that a company’s financial information is correct, but that the process used to report and compile the financial information has enough internal controls in place to reduce the chance of misreporting or fraud. The review of internal controls takes into account the paperwork trail of financial document, the financial systems used to process the documents and the separation of duties among employees who handle financial data.

Lends Credibility to Financial Statements

Financial statements that have been audited and verified by an external auditor are considered more reliable in the business marketplace than those that have not. Lenders, investors and potential clients often require externally audited financial statements before making the decision to work with a company. An externally audited set of financial statements gives lenders, investors and potential clients some security that your financial statements are free of error and that you have not committed fraud while compiling the statements to secure a loan, investment or new client.

Unbiased, Expert Recommendations

External auditors are trained specifically to focus on tightening and improving business processes to reduce the amount of risk of misreporting financial data. An external auditor does not bring individual likes and dislikes to the job, such as personnel favorites or aversion to change. Existing company management may allow favored or long-term employees latitude that creates dangerous exposure for internal control. Company management that is adverse to change may also stonewall or delay necessary process improvements because they do not wish to learn new systems and processes. An external auditor works with the single-minded purpose of improving the business.

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Fake external audit:

  Project Management:

  Project management is totally dependent on the financial and accounting data in the development of plans and performance monitoring and evaluation, and here are keen that these statements be audited by a neutral and independent auditor, which increases confidence in the data, also increases the degree of dependence.

Project management is also used data from the accounting and financial statements, which were checked in for planning purposes and to draw future policy and decision-making.

  Investors:

  The external auditor's report an effective tool for the shareholders, where they depend on to keep the members of the Board of Directors or to withdraw them confidence and re-election of the Board of Management last.

The new investors are heavily dependent on the audited financial statements when making any decision in direct savings and investment so as to achieve their highest possible return.

  Banks:

  Institutions applying for loans from banks and financial institutions, and before that the latter agrees to grant these loans, they are the diagnosis and analysis of the financial situation of the institution, and benefit from the financial statements approved in order to ensure the ability of the institution to repay those loans with their benefits in a timely manner.

  The report of the external auditor will help the bank to make decisions granting loans and bank facilities.

Governmental bodies:

  Some state agencies rely reformer taxes on data issued by the institutions in a variety of purposes such as taxation and Alrkabh..alkh that, nor can the state do to those purposes without the presence of an approved and certified by a neutral and independent data points.