A credible financial record not only stands at the forefront of what makes a company successful but it is also detrimental to its survival. The validity of the financial records for a company needs to be constantly examined under strict supervision of professional eyes, which is what makes the crux of an external audit.
An objective external audit helps to maintain transparency, accuracy, and completeness of the accounting records of a company and aids in making sure the financial statements are prepared following the accounting framework determined by the involved parties. This is the single biggest step in viewing the truest financial position of a company.
A pivotal aspect for maintaining the financial health of a company, external audit helps in identifying any error, embezzlement, or fraud existing in the financial records of a company, and helps in reporting it to the company’s stakeholders in due time to prevent further mishaps. So, as you can imagine, this makes the role and responsibilities of an external auditor paramount.
Roles & Responsibilities of an External Auditor
The existence of an external audit provides companies with the confidence they need to have a firm, fair, and true picture of their financial standings and ensure that it is in compliance with accounting standards like that of GAAP (Generally Accepted Accounting Principles).
An external auditor performs an extensive range of pivotal tasks that strengthen the backbone and credibility of a company. Primary among the various roles and responsibilities of an external auditor are the following.
Drafting the Audit
The first stage of their duties involves planning the audit, wherein they assess the associated risks of a company based on their expertise and a thorough understanding of the industry workforce. This is done to determine the real positioning of the company in relation to the market situation.
Conducting Audit Procedures
After learning about the concerned accounting policies, external auditors determine the risk of material misstatements and in the process, eliminate the risk of incomplete and false information through risk consultation. While designing the audit procedures, they apply their findings to assess the financial operations.
Inquiring Financial Situation
An external auditor must verify the general ledger of the company in question and investigate its management to help paint the truest picture of its financial health in relation to the market standings. This, in turn, serves as the basis for a range of fundamental managerial decisions.
Examining Financial Validity
By carefully examining the financial validity of the monetary records of a company, external auditors help in identifying any miscalculation or misstatement that may have arisen due to any embezzlement, error, or fraud. This helps in improving the authenticity of the financial statements of the company.
Determining Audit Results
External auditors have to vehemently test controls to ensure that they are sturdy enough to effectively mitigate ongoing and upcoming risks. This gives a record of the financial health of the company. Skilled professionals adjudicate the type of tests to run, figuring out what the results mean and identifying misstatements of materials during the evaluation process.
Reporting Audit Results
Since stakeholders are heavily reliant on the word of external auditors, it is the responsibility of the auditor to transparently communicate their findings to them and help them understand the audit results through their thorough analytical findings. It is their job to make the report as concise and clear as possible so that it helps the investors and stakeholders make an informed decision regarding their involvement with the concerned company.
Documenting the Audit
Documenting the audit is crucial since it serves as the evidence of the audit process, and the findings, and recommendations that an external auditor may have . Furthermore, these reports also serve as a referential material for future audits.
Skill Requirements for Being an External Auditor
At the foremost, having a Bachelor’s or Master’s degree in business, accounting, finance, or other allied fields is essential to become an external auditor. Having a CPA (Certified Public Accountant) license issued by the state alongside a CFE (Certified Fraud Examiner) credential is a requirement to be hired as an external auditor. These credentials help in sharpening various hard and soft skills that are pivotal in the making of a reliable external auditor.
Financial Analysis
They must be able to identify the risk factors and trends by analyzing the financial statements to report on the financial stability of the company. This also includes making optimal recommendations for improving risk-prone areas.
Research and Development
Auditing involves researching complex topics that will support the audit findings. So, having the diligence and patience to be thorough in their research is vital.
Attention to Detail
Carefully reviewing the financial statements helps in identifying discrepancies that are often missed by non-professionals in determining accurate audits. This attention to detail is what sets an external auditor apart from others.
Written and Verbal Communication
Having the skill to communicate their finding in concise reports through documentation as well as verbally making clients understand the findings of the investigation is important for providing unbiased recommendations.
Problem-Solving
External auditors must have the skills to navigate through the rough weather of financial assessment. Working under pressure and providing optimal solutions is significant.
Auditing Standards
A thorough knowledge of various auditing standards will help external auditors in making their reports in compliance with accepted standard policies.
Final Thoughts
Organisations of varied forms, be it commercial or non-profit have to independently audit themselves to ensure their credibility is transparent to their stakeholders, clients, and customers. An external audit extends far beyond the financial positioning of a company. It gives a testament to the legal and voluntary obligations, social responsibility, and IT aspects, along with health and safety measures.
Therefore, to ensure a company is adhering to the proper code of conduct, business ethics, rules, principles, and internal guidelines, relying on a trusted source of external auditor is crucial. So, while laying the foundation of your company and ensuring its longevity, make sure you hire external auditors with proven hard and soft skills who will extensively analyze accounts to give a robust examination of the complex data and provide optimal solutions for the same.