What characterizes an external audit?

An external audit is characterized by a comprehensive examination performed by an independent party that is not affiliated with the organization being audited. This independence ensures objectivity and enhances the credibility of the audit findings. The external auditors assess the financial statements and compliance with relevant accounting standards and regulations, which may include General Accepted Accounting Principles (GAAP) or international standards.

By being conducted by an external entity, the audit provides stakeholders, such as investors, creditors, and regulators, with an unbiased report on the financial health of the organization. This is different from internal audits, which are carried out by employees within the organization and may focus more on operational processes rather than purely financial compliance.

While external audits can touch upon areas related to operational efficiency or tax compliance, these are not their primary focus. Instead, the primary objective revolves around providing an overall assurance regarding the fairness of the financial statements and adherence to legal requirements.