What Is the Need for an External Audit
The need for an external audit in the case of companies arises primarily from the existence of split-up of ownership from control. When control is shared an audit report will be needed in order to ensure that all the partners or be it shareholders are on the same page as the managers (the ones who will be controlling the company) and know what has been happening in the company, what is happening at present and what can be expected to happen in the future in order to increase returns in the company. The case of an owner controlled company is different as usually the manager will be working in the company and will be aware of everything that will be taking place and will not need an audit report to find out what is going on. Since the owner is alone in decision making, he knows about all the decisions that need to be made and will not find out through an audit report that maybe the company has decided to expand and open a new branch using the accumulated or retained profits.
The audit involves the client’s staff and management in giving time to providing information to the auditor. The auditors need part of the staff’s time as they will not know where the proprietary’s accounts are kept and in which way they are filed. To gather all the information that the auditor will use in making his audit report he has to get it through staff. Since most owner controlled companies are very small and the staff members are few, it will make it difficult for the Professional auditors to plan their audit to minimize the disruption which their work will cause. The audit might end up inconveniencing other stakeholders such as customers because service can become slow as one of the staff members will be assisting the auditor, giving him all the documentation that he needs and accompanying him around as he investigates the internal control measures that have been created in the company to see how effective they are.
Application to lenders/financial institutions for finance may
The audit involves the client’s staff and management in giving time to providing information to the auditor. The auditors need part of the staff’s time as they will not know where the proprietary’s accounts are kept and in which way they are filed. To gather all the information that the auditor will use in making his audit report he has to get it through staff. Since most owner controlled companies are very small and the staff members are few, it will make it difficult for the Professional auditors to plan their audit to minimize the disruption which their work will cause. The audit might end up inconveniencing other stakeholders such as customers because service can become slow as one of the staff members will be assisting the auditor, giving him all the documentation that he needs and accompanying him around as he investigates the internal control measures that have been created in the company to see how effective they are.
Application to lenders/financial institutions for finance may
References: Abdel-Khalil A.R. (1983).Why do private companies demand auditing? A case for organizational loss of control. Journal of Accounting, Auditing & Finance, 8(1), 31-52 Proviti Flash Report on SOX 404(b) July 17 2004. Accounting and Audit Exemptions for Small Companies in the U.K-Terry Cartwright Environmental Self-Audit for Small Businesses: A Quick and Easy Guide to Environmental Compliance. New York Department of Environmental Conservation, Empire State Development, March 1998. Geltman, Elizabeth Glass. A Complete Guide to Environmental Audits. ABA, 1997. Power, Michael. "Expertise and the Construction of Relevance: Accountants and Environmental Audits." Accounting, Organizations, and Society. February 1997. Environmental Self-Audit for Small Businesses- Barbara Ceizler Silver