External Audit Procedure | AC1040

External Audit Procedure

Your company should periodically undergo an external, or third-party, audit of its financial operations to determine if they conform to requirements and are achieving the desired results. The External Audit Procedure determines if the company presents financial information in accordance with established criteria and is in compliance with specific requirements.

The procedure also determines if the company has designed and implemented effective internal controls over financial reporting and safeguarding assets to achieve stated control objectives. It applies to all financial operations. (10 pages, 1972 words)

External Audit Responsibilities:

The Audit Team Leader is responsible for evaluating and selecting an External Auditor.

The CFO (Chief Financial Officer) is the main point of contact between the company and the External Auditor and is responsible for coordinating company audit activities and responses.

The External Auditor is responsible for preparing the Audit schedule and plan, conducting the Audit, keeping the company informed of the audit’s progress, and reporting audit findings and results to the company.

All Employees are responsible for cooperating with External Auditors during the course of the audit and for taking appropriate actions, where required, to correct deficiencies/weaknesses found in the audit.

External Audit Definitions:

Adverse opinion – Opinion of an external auditor that an organization’s financial statements are so materially misstated or misleading that they do not fairly represent the entity’s financial position or results of operations and cash flows and/or the entity’s practices or controls are not in conformance with requirements (e.g., regulations).

Audit evidence – All information used by an auditor in arriving at conclusions on which the audit opinion is based. Audit evidence may be obtained from audit procedures performed during the course of the audit, the accounting records underlying financial statements, and possibly other sources (e.g., previous audits).

Audit opinion – Statement recorded by the external auditor in the audit report. An audit opinion can be qualified, unqualified, adverse, or it can be a disclaimer.

Disclaimer – Statement that the auditor is not expressing an opinion on the financial statements. A disclaimer of opinion is appropriate in such circumstances as when the auditor lacks independence (SAS 26), when sufficient competent evidential matter cannot be obtained (SAS 58), when there is substantial doubt about the entity’s ability to survive (SAS 59), or in matters involving uncertainty (SAS 79).

External audit – Examination of a company’s financial records and reports by an independent external auditor in order to verify that the company’s financial reports are relevant, accurate, and complete.

External Audit Procedure Activities

• External Audit Background
• Planning for an External Audit
• Supporting the External Audit
• Reviewing External Audit Results
• External Audit Follow-up

External Audit Procedure References

• Audit of Internal Control over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Other Proposals (Auditing Standard #5)
• Generally Accepted Auditing Standards (GAAS), American Institue of Certified Public Accountants (AICPA); Statements on Auditing Standards (SAS) #95, 98, 102, 105, and 112 (June 2006)
• Uniform Accountancy Act, 5th Edition

External Audit Procedure Forms

• Corrective Action Plan Form