External Auditing Process and Its Stages

Introduction

There is no use denying the fact that money has always been the main remedy which guaranteed existence of society and relations between different manufacturers. Being taken as the criterion according to which the value of a certain product can be determined, it helped people to from their system of prices which was extremely vital for the beneficial exchange of goods. It is also obvious that this created system developed along with society, obtaining new features and becoming more and more complicated. Creation of banks and development of this sphere also contributed greatly to its development. With this in mind, it is possible to say that the modern financial system seems to be very efficient and complicated at the same time. Being dependent on the main contributors, which are various organizations that deal with money, it had to create a special procedure which could protect it from different speculations (Millichamp & Taylor 2012). That is why, such remedy as an audit was created ad introduced. The main aim of the given remedy is monitoring the state of finances of every company that works in terms of the financial system of a country (Millichamp & Taylor 2012). It should also protect this very company from different causalities of failures. Resting on these facts, it is possible to admit the fact that this remedy became one of the most important issues of the modern world.

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Importance of the issue

Speaking about the issue of the audit, it is impossible not to mention the way it is applied to the functioning of different companies and its importance. First of all, it is possible to say that regular audit of various entities can be taken as the guaranty of stable functioning of the financial system of any state (Planning the external audit n.d). A great number of different violations or mistakes, which could be found during the audit process, can make serious harm to the incomes of a company and state (Meaning And Objectives Of Periodical Audit Or Final Audit Or Complete Audit n.d.). This fact can have a pernicious influence on all agents. With this in mind, large entities should provide fiscal statements for them to be analyzed and checked. There are usually some groups which are likely to have these statements. They are owners, suppliers, employees and other agents known as stakeholders (Millichamp & Taylor 2012). Thus, credibility of these very fiscal statements could be proved by various audit agents. The main aim of this check is to assure that stakeholders obtain trustworthy information ad there are no changes in the financial plan (What is the difference between internal audit and external audit? n.d.). It should be said that external audit process is one of these remedies which are used to provide an audit for large entities.

Eternal audit

Taking these facts into account, it becomes obvious that external audit is very important under modern conditions. First of all, it should be said that under the term external audit periodic or specific audit performed by an independent (external) accountant is meant (Handling an external audit n.d). It means that financial aspect of the functioning of a company is analyzed by a person who does not depend on it and is objective. The main goal of this very process is to determine whether the financial statements are made accurately and reflect the real state of affairs. It is obvious that it is rather complicated and long-term process which requires certain procedures (Assessing the effectiveness of the external audit process 2013). With this in mind, there are always two stages which are outlined. The first one is known as an interim audit and deals with the analysis of plans and fiscal records. The second stage, called the final audit, deals with fiscal statements and usually is conducted after the close of the financial period. Both being very important for the precise analysis of the functioning of a company, these two stages help to understand the main aspects of the procedure of external audit and that is why needs more analysis.

Interim audit

It should be said that traditional interim audit process starts with the analysis of the goals of a company (Meaning And Objectives Of Interim Audit n.d.). An independent and qualified agent should take into account the main purposes of a company in order to determine whether it adheres to these goals or not. Moreover, one should remember that usually interim audit is performed at the end of fiscal year. That is why, an independent auditor also inquires financial records of a company in order to verify them (Biery 2013). The main aim of this procedure is to assure that a company adheres to the main laws, which regulate transactions and financial procedures, and are accepted in a country. Necessity of this procedure is obvious, as it can be taken as the guaranty of clear and legal functioning of every company or organization. Great attention is also given to taxes, which should also be included in fiscal records of a company. Unfortunately, tax evasion is rather popular practice which is used by corrupted companies in order to obtain extra benefit. Yet, interim audit procedure should determine these attempts and apply certain sanctions in order to make a company follow the law and pay taxes. With this in mind, it is possible to underline a great importance of interim audit procedure.

Final audit

However, it should be followed by the final audit which finishes the whole analysis of the functioning of a company and states whether it adheres to the main laws or not. With this in mind, it is possible to say that an independent auditor works with fiscal statements of a company in order to find whether they are organized in accordance with the main goals of a company and its financial policy or not. Moreover, at this stage an auditor should make a certain conclusion connected with the functioning of a company. In other words, it is possible to say that the whole information gathered in the process of verification of financial reports and analysis of some other important aspects of the functioning of a company are gathered together and summary is made. At this stage an auditor should make a conclusion whether a company functions in accordance with the main laws or not and whether its financial reports are clear. This conclusion influences the future functioning of a company and also determines whether some penalties should be applied or not (Audit Finalization 2015).

Conclusion

With this in mind, having analyzed the main aspects of such issue as external audit it is possible to make a certain conclusion. It should be said that it consists of two stages which are interim and final audit and they both are very important for the whole process. An auditor analysis fiscal reports and statements of a company in order to render verdict whether its financial sector functions in accordance with the existing laws or not (Step 8: Final Audit Report Distribution n.d). That is why, it is possible to conclude that the procedure of external audit is very important as it helps to protect the financial sector from speculations and violations.

Reference List

Assessing the effectiveness of the external audit process 2013, Web.

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Audit Finalization 2015, Web.

Biery, M 2013, The role of external auditors in detecting financial statement fraud, Web.

Handling an external audit n.d., Web.

Meaning And Objectives Of Interim Audit n.d., Web.

Meaning And Objectives Of Periodical Audit Or Final Audit Or Complete Audit n.d., Web.

Millichamp, A & Taylor, J 2012, Auditing, Hampshire, Cengage Learning EMEA

Planning the external audit n.d., Web.

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Step 8: Final Audit Report Distribution n.d., Web.

What is the difference between internal audit and external audit? 2013, Web.

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StudyCorgi. (2020, October 27). External Auditing Process and Its Stages. Retrieved from https://studycorgi.com/external-auditing-process-and-its-stages/

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StudyCorgi. "External Auditing Process and Its Stages." October 27, 2020. https://studycorgi.com/external-auditing-process-and-its-stages/.

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StudyCorgi. 2020. "External Auditing Process and Its Stages." October 27, 2020. https://studycorgi.com/external-auditing-process-and-its-stages/.

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StudyCorgi. (2020) 'External Auditing Process and Its Stages'. 27 October.

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