External auditor

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An external auditor is an audit professional who performs an audit on the financial

statements of a company, government, individual, or any other legal entity or
organization, and who is independent of the entity being audited. Users of these entities'
financial information, such as investors, government agencies, and the general public,
rely on the external auditor to present an unbiased and independent evaluation on such
entities. They are distinguished from internal auditors for two main reasons: (1) the
internal auditor's primary responsibility is appraising an entity's risk management strategy
and practices, management (including IT) control frameworks and governance processes,
and (2) they do not express an opinion on the entity's financial statements. Beside
providing audit services, external auditors also provide different other kind of services.
Most common of them are reviews of financial statements and compilation. In review
auditors are generally required to tick and tie numbers to general ledger and make
inquiries of management. In compilation auditors are required to take a look at financial
statement to make sure they are free of obvious misstatements and errors.

The primary role of external auditors is to express an opinion on whether an entity's

financial statements are free of material misstatements. Some people confuse auditors
with people who detect fraud but auditors have nothing to do with fraud detection
exclusively. Auditors just want to make sure that company's financial statements are true
and fair representation of its actual position. If they come across any fraud related
information, it is their responsibility to bring it to the management's attention and
consider withdrawing from the engagement if management does not take appropriate
actions. Normally, external auditors review the entity's information technology control
procedures when assessing its overall internal controls. They must also investigate any
material issues raised by inquiries from professional or regulatory authorities, such as the
local taxing authority. For public companies listed on stock exchanges in the United
States, the Sarbanes-Oxley Act (SOX) has imposed stringent requirements on external
auditors in their evaluation of internal controls and financial reporting.

The independence of external auditors is crucial to a correct and thorough appraisal of an

entity's financial controls and statements. Any relationship between the external auditors
and the entity, other than retention for the audit itself, must be disclosed in the external
auditor's reports. These rules also prohibit the auditor from owning a stake in public
clients and severely limits the types of non-audit services they can provide.

In the United States, certified public accountants are the only authorized non-
governmental type of external auditors who may perform audits and attestations on an
entity's financial statements and provide reports on such audits for public review. In the
UK, Canada and other Commonwealth nations Chartered Accountants and Certified
General Accountants have served this role.

What Is an External Audit?

By Brian Brown, eHow Contributor

An external audit is a review of the financial statements or reports of an entity, usually a

government or business, by someone not affiliated with the company or agency. External
audits play a major role in the financial oversight of businesses and governments because
they are conducted by outside individuals and therefore provide an unbiased opinion.
External audits are commonly performed at regular intervals by businesses, and are
typically required yearly by law for governments.

Function

1. External audits are performed to verify that the financial statements of an entity
are correctly presented. They do not involve an actual accounting of a business' or
company's financial accounts, but rather external audits are an independent review
of financial documents provided to the auditor.

For a private-sector business, an external audit will typically include a review of

the company's quarterly or monthly financial reports as well as statements on
revenues and expenditures to ensure they are correctly tabulated and reported.

For governments, an external audit will include a review of the budget, the
allocation of funds and the actual expenses to ensure the budgeted revenues and
expenses were correctly compiled and used.

Time Frame

2. External audits are typically conducted once a year at the end of the company's or
government's fiscal year. They are performed after the entity's in-house
bookkeepers prepare a year-end financial report, which is one of the documents
verified in an external audit.

Companies and governments will typically issue quarterly financial reports

 throughout; however, these are usually by internal accountants and bookkeepers,
and have not been externally reviewed for accuracy.

Significance

3. Because external audits are performed by third-party accountants, they represent

an unbiased view of an entity's financial standing. For governments, this
independent review will ensure taxpayers that budgeted funds are being
appropriately spent and the revenues are not being under- or over-projected.

In the private sector, external audits are valuable to stockholders as they provide
an independent assessment of the company's financial holdings and can be used to
determine investment levels in the business.

Features

4. An external audit will feature a report outlining the auditor's findings. This will
generally be a summary of the overall validity of the financial statements and
documents as presented by the company or government.

Should the external auditor uncover discrepancies between the statements

presented by the company and his findings, these will be noted in the report as
well. The audit will often include financial suggestions for the entity as ways to
improve its overall financial standing and accounting practices.

The more important feature of an external audit is the conclusion of the auditor. A
favorable conclusion is unbiased evidence that the entity is reporting financial
data correctly while a negative conclusion is a red flag for poor accounting
practices.

Misconceptions

5. An external audit is not related to an inquiry conducted by the Internal Revenue

Service. The role of an external auditor is not to investigate fraud or tax evasion,
but rather to ensure the financial documents presented by a business are an
accurate reflection of its financial standing.

External auditors are not employed by the IRS or any government agency. They
are generally certified public accountants hired by the entity.

Read more: What Is an External Audit? | eHow.com

http://www.ehow.com/about_4894466_what-external-audit.html#ixzz18RNFV6rb