Why is External Audit Important in an Organisation?
Objectivity is key in business. It sends out the right message to interested parties that the business is being run properly, keeps the business compliant and adds a layer of transparency to internal proceedings to ensure any issues are identified quickly. External auditors are the key to this objectivity, acting as a much-needed ‘fresh pair of eyes’ to financial statements and accounts and bestowing their opinion and recommendations without bias.
Without effective external audit, it would fall to the business’s risk management and internal audit functions to pick up the slack of assurance work, with the company expected to evaluate their own controls and risk management strategies.
Auditing as we’ve said before is a grudge purchase, something that has to be done for the greater good of the business. But while your internal auditors keep things in check in-house, the external auditors offer an added layer of independence which enables them to critique accounting practices and general operations, sometimes with a conflicting opinion attached.
Being an outside firm gives the external audit team the ability to offer guidance without fear of any repercussions they may sustain by ruffling a few feathers. They aren’t afraid to question and interrogate the necessary people in the business to ensure their investigation is as in-depth as possible.
External auditors are highly methodical, organised and apply intense attention to detail which enables them to review a business’s operations thoroughly with a view to assessing where time can be better managed and costs saved. They bring their analytical prowess to the table in order to go through the company’s financial data and siphon out any anomalies that they would then report to the board and/or regulator.
The external audit team ensure the company’s financial reporting is compliant with international and local reporting standards and ultimately guarantee financial governance for the business. They typically have expertise in a number of financial areas that often goes beyond what your internal audit team can offer, thus you get a far more rounded examination of the inner workings of your organisation thus generating exceptional financial health.
All this lends a credibility to an organisation’s reputation. With that being said, something to consider is for companies to rotate their external audit firm approximately every ten years to retain that level of integrity and independence that the function exists for.