In addition to having permanent in-house auditing staff members, many Singapore firms embrace external auditing to appraise their financial documents. And it’s not just the big companies or corporations doing this; even small firms owned by individuals or family members now seek external audits from independent auditing firms.
But why is an external financial auditor needed when a company already has competent accountants that keep its accounting records? How is an external auditor different from an internal auditor? Does this not amount to a duplication of roles or waste of funds? We’ll look at this practice in this article to see whether external auditing is justifiable, not only for large businesses but also for small ones.
Below are reasons for external auditing and why you may need to consider it.
Reasons to Engage An External Financial Auditor
The last thing any business would want to do is lose its credibility before stakeholders. Without credibility, a company is like a time bomb waiting to explode. Accounting statements are tools many people use to gauge the competence and reliability of any firm. When people realise that someone who generated your financial audit reports is of no affiliation with your company, they have a better sense of honesty and transparency of your brand. This gives the impression that your organisation has nothing to hide regarding finances.
External audits provide a common foundation for stakeholders’ examination of the financial health of family-owned businesses and closely assist businesses and nonprofits. An external auditor also provides an unbiased look into the accounting approach for publicly traded organisations. Your company’s credibility is further enhanced if the external auditing firm has made a name for professionalism.
Compliance With Government Regulations
The Internal Revenue Authority of Singapore (IRAS) has several regulations that companies must not disregard. Non-compliance with revenue regulations can result in heavy sanctions or the closure of your brand. But with an ‘external eye’ taking a second look at your company’s financial dealings, you can avoid this trap.
External auditors determine whether your company complies with all applicable internal revenue service laws and regulations without any bias. They also give recommendations to remedy any non-compliance issues discovered. You can trust these recommendations not just because of their expertise but also because they have their name to protect.
Fraud Detection And Prevention
Fraudulent practices are no new things in business, especially the big ones. With only internal auditors, you may not be able to detect these sharp practices because they may also be accomplices to it. Of course, you can only imagine how much your business would lose if such practices went unabated.
However, an external auditor brings all shady deals to the limelight. External auditors are not part of the regular staff and are less likely to be a party to any in-house fraud. They are specially trained to identify fraudulent accounting acts that you may be unable to locate by merely checking the books. So, you can avert a disastrous loss in your business by consulting an external financial auditor.
Recommendation For Internal Control
Many small business owners are likely to have challenges with adhering to accounting rules that ensure the accuracy of financial records. That’s because they cannot afford to hire a full-time accountant. But they can outsource this task to any reputable external auditing firm, which will avert many financial errors on their part. Good enough, there are plenty of auditing firms in Singapore for this purpose.
Internal rules that prevent fraud, accounting errors, and theft are essential for growing a business. Internal control refers to collecting procedures and regulations that a company uses to ensure accurate financial reporting and prevent fraud. A financial report is an example of internal control that helps guarantee that company procedures, including financial statements, are exact. In addition, you can tighten your internal controls and processes by contracting an external auditor to help automate them for more efficiency.
Financial Records Accuracy
Most organisations interested in collaborating with your brand will always review your financial records to look for inaccuracies. If such is found, it lowers your chances and tarnishes your company’s reputation. But before such inaccuracies are discovered and become a thorn in your company’s flesh, an external auditor can help clean it up.
Engaging a professional audit firm to look into your company’s finances can also help trace the origins of financial statement mistakes. They’d also provide you with professional guidance on essential measures that can assist you in avoiding making mistakes in the future.
Assessing And Mitigating Risks
External auditors conduct risk assessments for organisations to assist in doing jobs effectively. They provide insight into the most efficient use of your time and advise what your organisation should do and avoid to make your audit more efficient. Auditors can use risk assessments to discover the objectives and goals that drive every process in a company. An external audit risk assessment can also help identify threats from rivals, changes in crucial connections with firm partners, pricing or cash flow concerns, and other economic pressures.
When choosing an external auditor, competence is an outstanding feature. A professional auditor is always up to date and knows how to collect meaningful data using the most up-to-current technology. As a result, essential information will be available to your company. Before taking on any external auditor, you should confirm that they have a license. You should also make sure you have a budget in mind. Some auditors or audit firms have more experience than others; thus, they may charge a little more.
Businesses should take external auditing seriously. Every successful firm prioritises staying within legal bounds. Although auditing is an arduous process, many audit firms in Singapore satisfy the requirements and conditions. The accounting and tax audit firm you hire should possess the requisite licenses because they can sway the credibility of your audited reports.