How to Perform an External Audit

External audits are essentially assessments of some aspect of a company’s operation. The audit may be focused on the structure and propriety of the company’s finances, legal and ethical compliance with legal and industry standards as they relate to operational procedures, or an evaluation of the human resource compliance of the corporation. An external audit is always conducted by a party that has no personal or financial interest in the company or its operations. Regardless of the type of external audit involved, there are a few essential processes that will always be involved.

External audits are essentially assessments of some aspect of a company’s operation. The audit may be focused on the structure and propriety of the company’s finances, legal and ethical compliance with legal and industry standards as they relate to operational procedures, or an evaluation of the human resource compliance of the corporation. An external audit is always conducted by a party that has no personal or financial interest in the company or its operations. Regardless of the type of external audit involved, there are a few essential processes that will always be involved.

Meet with company management and/or executives to define the perimeters of the audit. If the audit is primarily focused on finances, this will entail meeting with the Chief Financial Officer of the organization, as well as key accounting personnel. In other instances, this may involve Human Resources personnel, or employees who oversee the day to day operations of the production floor.

Research the company online. Find out what you can find in media reports, message boards, and other places around the Internet that may be relevant to the audit process. This is mainly helpful when conducting audits related to issues other than accounting, although the research could yield some important data that is relevant to a financial audit as well.

Gather relevant documents and data. This means gaining access to both paper documents and also any electronic systems that are used to house the relevant information. The data may come from file cabinets, internal electronic storage, or involve securing access credentials to data that is stored on a remote server.

Read all relevant data. This include hard copies as well as electronic files. Becoming familiar with both the type of documentation that is done as well as how detailed the information happens to be will provide a foundation for understanding what to look for and where to find what you need.

Prepare a list of questions and present to your contacts at the organization. The questions will have come to mind while reading through the data supplied. This may allow you to find more information that will help to fill in gaps in the data you have already reviewed.

Organize the data and the responses to the questions. Combining all input into a format you can easily work with will speed up the process of the audit.

Assess the data at your fingertips. This will mean identifying areas where the company appears to be in compliance as well as pointing out areas that are not in compliance and could use some additional attention.

Make suggestions for improvement. While this is not always the function of a financial external audit, it has become increasingly common for auditors to offer advice on how to improve existing systems so that the operation is more in compliance with industry or government standards.

Tips

  • Define the perimeters of the audit before beginning the work. There is no point in focusing on finances when the purpose of the audit is to evaluate the quality of the Human Resources efforts of the organization.

Warnings

  • Make sure all evaluations and suggestions meet the legal standards and regulations that are relevant to the jurisdiction where the organization is based and/or operating. Failure to do so will lead to a damaged reputation for the auditor and could lead to some type of legal recourse.

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