External Audit Definition in Business

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External Auditing

External auditing refers to a company having its financial statements assessed by an external professional accountant (one that is not hired by their company). The professional accountant is making sure that the company is creating its financial statements in accordance to government law so that the appropriate amounts of income tax are claimed. These financial statements will also give those who use the statements an idea of the financial position of the company. Users of the company's financial statements, such as potential investors, rely on the external auditor's report for an unbiased opinion on the financial health of the company. An external auditor is required to do this report because, if the auditor was an employee of the company, they may have incentive to lie and doctor numbers in order to make the company appear in a better financial position.

There is a strong moral code for an external auditor to follow when they are compiling a report on a company's financial statements. They are required to report any suspicious activity, such as fraud, to management of the company and their employers (usually the government).

BrainMass Categories within External Auditing

Auditing and the Sarbanes Oxley Act (SOX)

Solutions: 174

The Sarbanes Oxley Act establishes standards for external auditor independence, and requires external auditors to issue an opinion on the effectiveness of a corporation's internal controls over financial reporting in addition to their financial statement opinion.

Internal Controls

Generally Accepted Auditing Standards (GAAS)

Solutions: 6

Generally Accepted Auditing Standards (GAAS) are the standards set by the Auditing Standards Board that lay out the rules and principles that an auditor must follow when carrying out an external audit of a business's financial statements.

The Role of the Auditor

Solutions: 54

An auditor reviews the financial information of a company. External and Internal auditors share many of the same responsibilities and requirements but have slightly different goals.

Audit Reports
Types of Audits

Ethical Issues for External Auditors

Solutions: 54

Following in the wake of the accounting scandals of WorldCom, Enron, and Arthur Anderson, increased scrutiny over the independence and ethical standard of the accounting profession has placed increasing pressure on the profession to develop and adhere to stricter standards to prevent fraud and protect investors and creditors.

Fraud and Earnings Management

BrainMass Solutions Available for Instant Download

Doughtie's Inc Auditing: Suspicious Inventory Turnover

I'm struggling to understand and find a suitable solution for Q. 3 and Q. 4 of the Doughtie's Inc auditing case study (attached). 3. In 1981, Gravins' inventory turnover was approximately one-half that of comparable divisions within the firm. How should this fact have affected the planning for the 1981 audit of Doughtie's? W

Auditing: CPA exam prep questions control, assertions, evidence

1. To determine whether the system of internal control operated effectively to minimize errors of failure to invoice a shipment to customers, the auditor would select a sample of transactions from the population represented by the A. Customer order file B. Bill of lading file (shipping document) C. Open invoice file D. Sale

Interdependencies in Risk Management

In a top-down approach, the final step is to examine the organization's business processes. I need to discuss the following in three pages Identify a specific example of how a risk in one business process affects the risk level in another. In your paper, outline how you might be able to mitigate these interdependencies.

Auditing Practice Exam Questions: Audit Risk; audit reports; sampling

1. Control risk is the probability that a material misstatement (error or fraud) could occur and not be prevented or detected on a timely basis by the auditors' substantive procedures. a. True b. False c. True if control risk is set a maximum d. False because you don't know the inherent risk level 2. What is the a

What occurs when the acceptable level of detection risk decreases

14. The auditor uses the assessed level of risk of material misstatement to determine the acceptable level of detection risk for financial statement assertions. As the acceptable level of detection risk decreases, the auditor may do one or more of the following: a. change the substantive tests to tests of controls b. decrea

Qualified Disclaimer Audit Reports: Select report type

Chapter 11 Problem 37 Place the letter of the report type that best fits the language presented on the answer line. Each report type may be used more than once or not at all, but each item has only one best answer. If you think more than one answer may apply, choose the BEST answer. a. Explanatory language b. Unqualified o

Potential Audit Procedure Failures for each audit procedure

Potential Audit Procedure Failures. For each of the general audit procedures of (1) recalculation,(b)observation, (c)confirmation (accounts receivable, securities, or other assets), (d)inquiry, (e) inspection of internal documents, (f) recalculation, (g) performance, and (H )analytical procedures, discuss one way the procedure

Audit and consulting services

Why do you think the SEC requires companies to disclose fees paid to independent accounting firms for audit and consulting services? What must be disclosed? 100 words please.

Apollo Shoes case. "Analytical Review"

Auditors must perform analytical procedures at the beginning (and end) of every audit. The purpose of these tests is to identify potential problems areas so that audit work can be tailored and designed to avoid missing important events, transactions, etc. Using the Apollo Shoes Inc case from McGraw-Hill, complete an analyti

Sample Slingers Corporation

You are the auditor for Sample Slingers Corporation, a publicly traded company in the business of providing staff to hand out merchandise samples at large discount stores like Costco, Sam's, and Wal-Mart. You have participated in the audit of Sample Slingers for five years. In those five years, you have never seen an accounting

Internal Controls for Auditors Responsibility

1. What is the auditor's responsibility for testing internal controls when the auditor believes that the internal controls are effective and intends to rely upon them? The auditor is required to test the controls. The auditor may test the controls. The auditor does need not to test the controls. The auditor never h

Internal Control Framework for U.S. Companies

You have learned that the internal control framework for most U.S. companies is the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control—Integrated Framework, issued in 1992. I need help completing these questions in 300-400 words: 1. Identify the Treadway Commission discussing its origi

Beazer Homes USA Case

In the Beazer Homes USA case (i.e., Case 10), the chief accounting officer was accused of duping the external auditors through the use of an earnings manipulation scheme. Imagine that you were the auditor of the mortgage company. Design an audit plan to address the important accounting issues highlighted in the case. For each is

Unrestricted Random Sampling Without Replacement

9-38. The 10 following statements apply to unrestricted random sampling without replacement. Indicate whether each statement is true or false. Briefly discuss each false statement. a. When sampling from the population of accounts receivable for certain objectives, the auditor might sample only active accounts with bala

Koss Corporation and unauthorized financial transactions

- From Koss Corporation case, discuss how a weak internal control system and board oversight contributed to the embezzlement activity at Koss Corporation. Speculate on how embezzlement impacts the corporate stock price, and determine the key type of disclosures that management should make to the financial statements. Provide spe

Internal Control and Auditing Standards

7-28. Adherence to generally accepted auditing standards requires, among other things, a proper understanding of the existing internal control. The most common approaches to documenting the understanding of internal control include the use of a questionnaire, preparation of a written narrative, preparation of a flowchart, or a

Auditing Evidence

5-36: Comment on the reliability of each of the following examples of audit evidence. Arrange your answer in the form of a separate paragraph for each item. Explain fully the reasoning employed in judging the reliability of each item. a. Copies of client's sales invoices. b. Auditors' independent computation of earnings per

Healthcare IT fraud: deficiencies in internal controls

Search on several U.S. health care publicly-traded companies and choose a health care organization that has been accused of committing health care fraud. (You may use HealthSouth Corp. Accounting Fraud or choose other case.) - Determine whether deficiencies existed in the IT environment, and suggest ways to improve audit trai

Discussing Fraud Examination

Requirement: Present a recent example of fraud with non-cash assets or fraudulent reimbursement. Be sure to answer the following questions in your paper: - Who committed the fraud? - What was taken and what was its value? - When was the fraud committed? - Where was the fraud committed? - How was it stolen? - Why did the

Fraud Examination: Developing an Appropriate System of Controls

Required Provide an example of how a fraud could be perpetrated in one of the following types of fraud: • Billing • Check tampering • Payroll schemes And 1) design an internal control to prevent it and 2) assuming it escaped detection by existing Internal controls, how might you detect it after it's happened?

Most Important "Fraud Triangle" Factor

Cressey's "fraud triangle" states that three factors: non-sharable financial need, perceived opportunity, and rationalization are present in cases of occupational fraud. Which of these three factors, if any, is the most important in causing executives, managers, and employees to commit occupational fraud? Support your answer wit

Auditing Homework

7-37 Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and non-financial data. They range from comparisons to use the complex models involving many relationship and elements of data. They involve comparisons of recorded amounts, or ratios develop

Account Cycles and Auditing

Could you please answer two or three questions below? 1 - Discuss inherent risks for each of the reporting cycles. Explain how these are relevant to an auditor applying the ARM. 2 - Discuss types of evidence an auditor would focus on getting with respect to each of the accounting cycles. 3 - Provide examples of specific su

Auditing Responsibilities, Types of Reports

Explain auditors' responsibilities with respect to detecting and reporting fraud? Provide a brief overview of the types of reports that accompany an entity's financial statements?

organizations doing Internal auditing

Visit The Institute of Internal Auditors' website (www.theiia.org). What is internal auditing? 1. Why should an organization have internal auditing? 2. What should be the reporting lines for the chief audit executive (CAE)? 3. How does internal auditing maintain its independence and objectivity? 4. What is enterprise ris

Greater number of controls in place

The greater the number of controls in place, the lower the audit risk and the lesser the work that has to be done by the auditors. Do you agree?

Financial, Operational, and Shrink Auditing

1. What are the different types of audits that retailers use. Why is auditing necessary? What benefits can be gained to offset the costs associated with them? 2. What are five ways a retailer can determine performance. Why is it important for retailers to attempt to measure and compare their performance with competitors and

External Audit Definition in Business

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