+971 5454 67367Several companies suffer from cases of fraud and embezzlement that ultimately lead to the company’s failure and fall. Still, the successful company increases the dependence on external audit of its operations to ensure the accuracy and integrity of its financial statements and quick access to any fraud or unfair treatment cases.
The audits here are not limited to the company’s auditors. Still, the successful company should rely more on external audit to get more accurate reports than an internal audit and correctly assess its financial situation.
Hence, it is clear that external audit is one of the essential pillars of any company’s success, continued business and profits for as long as possible. We can define external audit in a simplified manner as follows:
Definition of external audit
Several companies suffer from cases of fraud and embezzlement that ultimately lead to the company’s failure and fall. Still, the successful company increases the dependence on external audit of its operations to ensure the accuracy and integrity of its financial statements and quick access to any fraud or unfair treatment cases.
The audits here are not limited to the company’s auditors. Still, the successful company should rely more on external audit to get more accurate reports than an internal audit and correctly assess its financial situation.
Hence, it is clear that external audit is one of the essential pillars of any company’s success, continued business and profits for as long as possible. We can define external audit in a simplified manner as follows:
External auditor
An independent and expert accountant who serve capital holders by giving them a firm and accurate opinion about the validity and integrity of their company’s financial statements, detecting if they are free from errors and fraud or not? Within the limits of the lists and documents submitted to him.
This does not mean that the company can choose any accountant to carry out its external audit. But an expert accountant must be selected who has been certified by the competent accounting authorities and enjoys complete independence from the company.
He is appointed during a general assembly meeting of the company for a specified period only. He shall be fully responsible for everything mentioned in his external audit report.
Service for the owners of the company's shares and investors with a clear opinion in detecting the integrity of the company's financial statements.
The external auditor reveals any manipulation, fraud, or error in the financial lists and corrects the internal auditor's errors.
Regular and legal review of all records.
Prepare accounting reports.
Provide accounting support.
Provide accounting support.
Ensure that internationally recognized laws and accounting standards are applied.
Supervising and controlling inventory work, whether for stores or assets.
Prepare an accurate record of real assets.
Advisory services provided by the external auditor
In recent years, advisory services provided by external audit companies and offices have increased due to intense competition. Advisory services for external auditors include
External Audit Steps
The external audit process can be divided into seven main steps:
Preparing and planning an external audit program
The external audit process can be divided into seven main steps:
Planning
When an external auditor is selected for the task, he performs a detailed program called "Audit Procedures and Tests" designed according to each client's circumstances. The auditor tries to study his client's activity and accounting system and set the appropriate external audit date. The audit may be initiated during or after the end of the fiscal year. After that, the auditor identifies the appropriate and competent accountants to help him perform that task.
The auditor's understanding of company policies and laws
Every company owns a regulation that includes financial policies and laws according to which operations are conducted. The external auditor should carefully study this regulation and understand it well to help him understand the accounting and financial system.
Doing an analytical study.
All financial transactions are studied and compared to ensure their safety. This step is considered one of the proof evidence used by the external auditor. Suppose the external auditor finds manipulation or errors. In that case, he will search more for the source of the error and perform tests that achieve additional results for review and access to information correct.
Getting accurate information about the project.
The auditor looks for information about the nature of the company's business and structure taken from reliable sources. The auditor then examines the company's situation and has government decisions, and economic conditions affected the field of work provided by the company? The auditor also determines the accounting applications and programs appropriate for the company's activity and the extent of expected risks.
The audit strategy committed by the external auditor
The external auditor chooses a specific plan to review and examine data and lists, and sometimes more than one strategy is required to complete the external audit. These strategies include tests to confirm the validity of balances and processes recorded by the company's internal control system. They may also rely on internal control reports and reduce verification tests without reviewing them.
Determining the amount of relative importance
The auditor is concerned with the main items of the financial statements. He determines the amount of relative importance using available factors and thus determines what report they will submit.
External Audit Steps
Capitalists need to know the correctness of what is recorded in their financial company’s lists, which is the main reason why they resort to an external auditor who has no connection with the company and can examine thoroughly, skillfully and experienced.
An external audit helps to clarify the success of the company’s management in performing its mission and the level of profits reached by the company, which makes investors decide to invest or separate from this company.
The external auditor also uses several documents for auditing, such as:
Financial systems and Regulations.
The general budget and all financial statements.
Certified copies of agreements and contracts made by the company with clients, employees or companies and performance contracts.
Company organizational chart.
Reports issued by the Internal Audit Department for the current and pre-audit period.
Any instructions or directives issued by management.
Minutes of the Executive Board, Board of Directors, Health Assembly and Administrative Committees.
Reports of the external audit cycle of previous years.
The role of external audit in improving the quality of financial statements
Many studies related to the external audit have demonstrated its essential role in improving the quality of financial statements.
External audit reports give credibility and validity to lists and the complete and accurate picture of the data recorded on the lists.
This increases the confidence of business owners, investors and their obligations.
It also clarifies all the financial risks that threaten the company and ways to remedy them.
Factors affecting the quality of the external audit
1. The auditor’s capabilities, knowledge, and experience in auditing, whether it is an individual, office, or company.
2. The excellent reputation of the auditor. A good reputation is gained after working faithfully for years so that the auditor will gain a reputation and a well-known business name. A good reputation also depends on the quality of the service.
3. The auditor’s amount of services to the client, especially with the increasing number of audit companies, and the more external auditor services, the more specific the quality of the external audit is.
4. The period of dealing between the company and the auditor. The higher that period, the more auditors understand its business and the greater their ability to detect errors and financial fraud.
5. External auditor’s pay. Increasing or reducing income may affect the integrity and quality of the audit.
6. The company’s field of work. The ideal auditor studies the company’s area well and then applies a plan that suits the field.
The extent to which the auditor adheres to international auditing standards and laws. It is considered the most influential factor in quality
External Audit Standards
In 1972, the American Institute of Accountants issued a set of general standards called GAAS External Audit Standards, as follows:
1. The audit is carried out by an individual or group of trained, highly qualified and highly skilled individuals who have been internationally accredited as auditors.
2. The auditor must be familiar with the industry in which they will work and be aware of technological means within the company.
3. An external audit course needs a lot of accuracy, focus and examination more than once to ensure that what will be recorded in the reports is correct.
4. Auditors have fairness and impartiality in thinking and auditing.
5. Distribution of work, determination of responsibility and continuous supervision of the audit process.
6. Determine the timing of the external audit and tests to be used.
7. Obtaining the necessary proof of audit evidence and ensuring its quality and adequacy.
8. When issuing the final report, it is necessary to illustrate whether the financial statements comply with international accounting standards or not.
9. The report contains the auditor’s opinion on the lists and records the reasons for abstaining if they refrain from expressing an opinion.
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