External audit is process of examining entity financial information done by independent auditor so that he can issue opinion on whether financial statements of the entity show true and fair view or not. Statutory external audit is one which is required by law of the country in which the entity operates.
An external audit provide the following benefits:
- It provide assurance to management that they have complied with non statutory requirement, such as corporate governance requirement (where these are subject to audit or review)
- It increase the credibility of published financial statement;
- It confirm to the management that they have performed their custodian roles correctly
- Audit financial statement simplify acquisition of funds from financial institutions;
- It provide feedback on effectiveness of internal control. where internal controls are weak or inadequate, the auditor will give recommendation for improvement. this will assist management in reducing risk and improving performance of the company.
Even if the audit is not statutory for example in case of small companies, the audit can improve the credibility of financial statement making it easy for the company to get financial resources from lenders such as banks and potential investors.