External Audit Functions
External audits provide a third-party review of an organization's financial or business operations. These audits may be conducted by a public accounting firm, individual certified public accountant (CPA), compliance agency or a government entity. External audits may be used to ensure outside business stakeholders that the company is meeting its obligations to financial shareholders in the economic marketplace. Managers also use external audits to meet specific requirements from outside organizations or government agencies.
Financial
The external financial audit function is the most common type of external audit found in the business environment. This function covers a review of a company's internal controls, financial information work flow and information presented on the company's financial statements. External audits are usually conducted by public accounting firms or individual CPAs. Companies use this audit function to ensure their financial information is recorded according to national accounting standards and that no improprieties or material weaknesses exist in the company's accounting department.
Operational
Operational audits are used by companies to verify that each business department operates according to the company's standard operating procedures. External audits perform this function to ensure an honest and objective opinion is given regarding the company's operations. This objective opinion gives managers an idea how well the company is operating according to its standards if any changes need to be made to improve production output of the company.
Compliance
An external compliance audit may be conducted by a public accounting firm or third-party organization to ensure that the company is abiding by specific contractual agreements. A compliance audit may be needed so a company can maintain specific certification or professional licensure. Companies often face compliance audits from government agencies or professional organizations that certify a company's operations using a specific designation.
Investigative
Investigative external audits may be conducted if a company has engaged in unusual or suspicious activity. External investigative audits may be requested by shareholders, a watchdog group or government agency. Companies may also face an investigative audit if an employee "blows the whistle" on questionable company activities. While investigative audits may include specific financial or accounting operations, operation or compliance investigative audits may occur if the company has engaged in unethical or illegal behavior that may hurt consumers.
Follow-up
Companies that fail an initial external audit may be required to go through a remedial audit. A remedial external audit is used to ensure that a company has made corrections or altered its business operations to remain in compliance with specific business standards. Remedial audits are usually conducted after a certain time period has gone by in which the company is expected to make changes regarding the initial external audit requests.
