An external audit is an in-depth examination of a company's financial records by an independent accountant that results in a verified certification. These certified statements are required for all publicly-held businesses and can be requested by shareholders, investors, and lenders if there is suspected discrepancy in the reports.
During the process of an external audit, an auditor will very thoroughly review a company's financial and accounting records. This involves checking for the accuracy and completeness of these records, whether these records have been prepared in accordance with the generally accepted principles (GAAP), and whether the financial statements are correctly representing the company’s current financial position.
In general, a company will not have more than one external audit per year. Publicly held companies and nonprofits are legally obligated to perform external audits annually due to federal, state, and local regulations. Some business owners also find it valuable to conduct external audits voluntarily due to the beneficial nature of having independently verified financial statements.
An external audit's main purpose is to validate a company’s financial statements and to provide assurance of the accuracy of the financial reports to both management and to third-parties. After the conclusion of an audit, the auditor will produce the auditor’s report expressing their opinion on the company's compliance with standard accounting practices. This will include any discrepancies found in the business's financial accounting and reporting, or any non-compliance of rules and regulations.