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Who are external auditors and what do they do?

Question by Sydney Mulunda On 19 March 2020, 18:37:44


Please write a genuine and meaningful answer to get a good ranking.

Answer by Sydney Mulunda On 19 March 2020, 18:51:12

External auditors are individuals or organization which are tasked with the manadate of providing an opinion as to whether the financial statements of an organization portray a true and fair view of the current position of the company. They are appointed by the shareholders of a company during the annual general meetings and are therefore answerable to the shareholders of the company. They are appointed as a result of the agency problem that arises as a result of the various interest between the shareholeders or owners of a company and the management. On one hand the shareholeders are mostly interested in wealth creation whereas on the other hand, some managers may only be interested in personal gain as opposed to acting as agents of the company. Hence the managers may attempt to msnipulste the financials of the company to reflect a wrong view of the actual position of the company. Therefore, this is where external auditors come in to ensure that the financials presented by the management present a true picture of the organisation.

During their work external auditors are required to follow The Internaltional standards on auditing, (ISAs) before coming up with their opinion. These auditors can either give an unqualified opinion, an adverse opinion or a disclaimer of opinion. They issue an adverse opinion when the statements do not reflect a true and fair view of the state of the company and issue an unqualified opinion when the statements reflect a true and fair view of the company. A discalimer opinion is issued when there is insufficient evidence for them to give an opinion. 

It is worth noting that the auditors have to gather evidence before issuing their opinions hence the auditing process may take time depending on the nature of the organisation, the timing and the scope of the audit. As a result of their services, the external auditors are paid audit fees for the work done.  





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