External Audit is defined as the audit of the records of the company in which independent auditors perform the task of examining validity of said records of the company carefully in order to find out if there is any misstatement in the records due to fraud, error or embezzlement and then reporting the same to the stakeholders of the company.
The objective of the external audit includes the determination of the completeness and accuracy of the accounting records of the client, to ensure that the records of the clients are prepared as per the accounting framework which applies to them and to ensure that the company complies to the requirements mentioned in the ISO Standards.
Roles & Responsibilities of an External Audit
The main responsibility is to verify the general ledger of the company and make all other essential inquiries from the management of the company. It helps to determine the real picture of the company’s market situation which further provides the basis for managerial decisions. The audit is also used to examine the validity of said records to find out if there is any misstatement in the company’s record because of fraud, error, or embezzlement.
If there are errors in the audit process of the company, then it may prohibit the owner of the company is taking the decisions which are best for the company. An audit helps in overcoming this problem to a great extent as the procedures in the audit are designed in such a way that they help in detecting the errors in the system and the other fraudulent activity. It helps the owner of the business to cover themselves when it comes to following the different rules and regulations which the registered entity needs to follow.
The main purpose for which the external audit is conducted includes the determination of the completeness and accuracy of the records being presented by the company to the client, to ensure that the records of the clients are prepared and well-established. A statutory auditor can ask for the company’s private documents, records, or any information in relation to that for which the management cannot deny him.
The difference between internal and external auditing:
First, it’s essential to provide internal and external audit definitions, so you can decide which function you would rather pursue.
Internal auditing
During this procedure, the internal auditor will examine an organization’s arrangements regarding governance, internal control, and risk management. At the end of the auditing process, this professional will provide an internal opinion on the state of the company’s performance in each of these areas. Then they will create made-to-order reports, which they will send to the audit committee and the board. The public does not see the results of an organization’s internal audit. Because an internal auditor works with different teams of employees and covers a variety of corporate operations, these professionals’ skill sets are typically more interdisciplinary than focused on one specialization.
Internal auditors may be employees of the business that is undergoing the auditing process. In order to perform their duties effectively and without bias, internal auditors can only work alongside projects they have not directly contributed to. For this reason, internal employees typically report directly to the board rather than a manager at the firm. However, many organizations outsource their internal auditors from other accounting firms.
Internal auditors must be compliant with the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing. This set of conduct standards helps companies eliminate ineffective or counterproductive practices, so they can run their businesses more smoothly. Here are some of the issues an internal auditor can detect:
- Fraudulent activities
- Risks in governance, risk management, and internal control
- Wasteful spending
- Compliance with industry- or location-specific regulations
After conducting the audit and gathering necessary information, the external auditor is supposed to give its audit report
External auditing
Unlike an internal auditor, whose goals are to improve the organization’s governance, an external auditor expresses an opinion regarding the company’s overall operational state. External auditors will report this condition to the public. The major parties that benefit from this external audit include investors, creditors, and lenders.
Organizations bring in external auditors from contracted third-party firms, since they have no vested interest in the organization and can therefore provide an unbiased report. They must perform their duties in accordance with the International Auditing and Assurance Standards Board International Standards on Auditing.
Most commonly, an external audit is intended to get the certification of certain statements and important documents of the company. Certain investors and the lenders require this certification for their analysis.
External audits in the company are conducted by a third-party auditing body named SGS Philippines.
They have been operating in the Philippines since 1949. Today, SGS Philippines, Inc. is the country’s leading provider of certification, testing, verification and inspection. With their headquarters in Makati, we have over 1,000 employees and a network of offices and laboratories located in Subic, Mariveles, Navotas, Batangas, Albay, Nueva Vizcaya, Masbate, Leyte, Surigao City, Davao City, and Cebu City.
They provide a wide range of solutions to every sector, including services for mining, oil, gas and chemicals, and consumer goods. We also offer systems and services certification for various industries, and commercial and non-commercial institutions.
They also continue to share in the development of the Philippines and its initiatives. For example, they are involved in the country’s fast-growing industries, one of which is business process outsourcing (BPO). Established in 2000, SGS Gulf Limited – Regional Operating Headquarters (ROHQ) – provides BPO services that includes Information Technology (IT) services and 24/7 operations support for the SGS network.