Why An External Audit Is Important?
In any kind of business, it is important to have frequent internal audits that should be conducted to determine whether the business is operating at its highest efficiency or not. These audits can be limited to the examination of the business’s financial health or an extensive audit that dives deep into all the risks and challenges faced by the business, as well as how to prepare for these risks in the future. Internal audits can be undertaken by members of your own staff who have some vested interest in the success of the company.
On the other hand, an external audit is conducted by an independent agency or firm that has no connection to the business. These audits are made for the same reason internal audits are conducted. But there are several advantages of having an audit conducted by an independent auditing firm to really determine the company’s financial status and the strength of its reputation.
External audits help ensure tax compliance.
An external audit opens the business to a critical and bias-free assessment of whether the company is in compliance with all applicable Australian Taxation Office regulations and rules. An advantage of an external audit is that the auditing firm conducting it is not affiliated with the company and can evaluate the business without the fear of repercussions even if you do not like what they have to say.
External audit provides independent credibility. Having audit services from an outside firm will make financial statements more credible. Independent audit gives credibility which is a key to the success of a small business, especially when you are in the process of trying to build a strong reputation within an industry. Since external auditors do not work directly for your company, they are not going to be swayed by any pressure that you may use to get a favourable audit. The approval of financial statements by an external auditor is more credible than those of an internal auditor.
External audit allows a critique of internal processes. Internal auditors cannot effectively critique the internal processes of a company because they are part of the company. External auditors, however, have the ability to observe operations and determine which areas of the business are wasting time and money. Most external auditors often critique general operations and accounting practices. They also develop action plans for businesses to reduce waste and implement strategies for better and greater efficiency.
External audits allow quality control of internal audits.
Independent external audits are important because, in several instances, internal auditors may be too close to the business because of their position in the organisation. Some do not have enough accounting knowledge and experience to properly or correctly do the audit financial statements. External auditors look at the same factors that internal auditors look into and they double-check their work. They try to ensure that the internal audit was accurate, comprehensive and reflective of the financial status of the company and its tax compliance.
External auditors usually have expertise in various financial areas and exceed the knowledge of internal auditors. They may train internal auditors in accounting principles by explaining how they analyse information and how their analysis differs from them.
The Benefits of an External Audit
- External audits are impartial. External auditors have no relationship or previous relationship with the coders or information providers in an organisation. Audits can be done without fear of any repercussions in the workplace.
- External audits offer validation to certain situations or events discovered in internal audits. Recommendations received by multiple sources may be better received.
- External audits are best for any organisation. Their goal is to look for potential opportunities to keep a company compliant.
- External auditors may find things that were previously unnoticed. They may reveal potential irregularities in the system which can be easily straightened-up or corrected.
- External audit can easily identify trends and proper or necessary education can be given.
- External auditors are solely focused on audit while internal auditors may have other jobs, responsibilities, and duties which may be a hindrance to having an impartial audit.
Internal audit is important for an organisation but external audit increases the opportunities for uncovering potential compliance risks. External auditors and the organisation being audited work together and try to ensure that coding is correct and that guidelines are followed.
Kingston Knight Audit are the Auditor Melbourne experts to contact when dealing with your trust account audit, SMSF Audit, financial statement audit, and internal audit requirements. Contact us today, Kingston & Knight Audit offers a free telephone consultation to establish how we can best help you achieve the assurance and compliance you require.