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What Is an External Audit?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 31 July 2014
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    Conjecture Corporation
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External audits are audits of financial records that are conducted by an accountant or accounting firm that is completely independent from the client. An external audit may be conducted on the financial records of an individual, business, non-profit organization, government, or any other type of legal entity. Audits of this type may be ordered by a regulatory agency, or conducted at the request of the individual, business, or organization, as a means of ensuring that standard accounting practices are being followed.

The value of an external audit exists because the accountant conducting the evaluation of the financial records is considered above any type of bias or prejudice. In theory, this helps to ensure that the audit can progress without any chance of improprieties taking place, and that the final outcome of the audit is complete and fully accurate. Often, an external audit is conducted at least annually, after accounting professionals who are employees of the firm or organization have conducted an internal audit. This two-pronged approach to evaluating the accounting records makes it virtually impossible for irregularities in the financial records to remain undiscovered.

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It is not unusual for organizations and businesses to include provisions for an external audit in documents such as orders of incorporation or the by-laws that govern an organization. This is especially true in non-profit organizations that rely on contributions from members and other donors in order to operate. Often, the findings of the audit are made available to members and others, allowing the record of donations and how the collected funds were used to be transparent. Today, it is not unusual for religious organizations as well as other types of non-profits to routinely have outside audits conducted and the results published for the benefit of the general membership, and for anyone who is interested in affiliating with the organization.

The process of preparing for an external audit is somewhat simplified by following a simple audit checklist. A list of this type can be obtained from the firm that is scheduled to conduct the audit. In larger organizations, there is often an audit committee that is charged with the task of reviewing the checklist, and making sure that all accounting records are made available to the outside auditor or a larger audit staff, if the organization has multiple locations and subsidiaries. Today, the use of audit management software can expedite the process of conducting the actual external audit, making it much easier for any apparent issues to be addressed and resolved in a short period of time. An efficient software package may allow the final statement by the auditors to note any corrections that were made, and be able to sign off on the accounting records as being fully compliant with any current regulations as well as standard accounting practices.

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