External audit is an independent review of final accounts generated by business. The ultimate purpose of external auditor is to provide an opinion on that the financial statements prepared by organization is either showing true or fair view of not.
In addition to above, there are several aspect which and auditor take into consideration while arriving at certain opinion. Some of them are as follows:
- Reliability of Information
- Aligned with IFRS
- Compatible with local laws
- Disclosed properly
The key outcome for financial statement audit is to add credibility to reported profit & loss and balance sheet. The authenticity of financial position and performance would allow the room to negotiate bank loans and favorable credit terms with suppliers.
Moreover, in pursuits of compliance requirement for International Financial Reporting standards and statutory law have narrow down the way of fraudulent activities and these are been control by stringent series of disclosure requirements.
Stages of audit includes the following:
Planning and risk assessment
In this stage, the initial understanding of business operations and industry norms are taken into consideration through various sources of information in order to gauge that what type of risk may impact on financial reporting of this kind of organization.
Test of controls
Test of controls focus on the effectiveness of following:
- Segregation of duties
- Proper Authorizations
- Control system
The combination of above ensures the integrity of financial and operational transactions.
In this step, all potential risky areas are tested in details, by defining a population and then taking out sample to apply test of details.
The unqualified or qualified opinion is being generated based on outcomes of the procedure.