Insights

Audit & Assurance

Beyond Compliance – how can external audit drive value (with in-sights)

January 17, 2025

External auditing is often interpreted as merely a means for fulfilling legal and regulatory obligations. However, it plays a significant role in adding value beyond compliance, such as improving financial integrity, enhancing internal process efficiency, risk mitigation and increasing the shareholder's trust and confidence. This discussion outlines the benefits and value additions that an effective external audit can deliver, citing a few insights and practical examples.

  1. Improving financial integrity

Example:

While undertaking an audit for a manufacturing company based out of the UAE, incorrect classification of expenses was observed. IASB Conceptual Framework lays down the guidance for what constitutes an income or an expenditure. Correction of the discrepancy led to an increase in the net profit margin of the Company, thereby presenting the true and fair view of the financial results of the Company.

Impact:

- This led to an increase in investor confidence due to better profitability

- Accurate presentation of the financial results of the Company.

  1. Risk identification and mitigation

An external audit is designed and planned to perform risk assessment. ISA 315 – Identifying and assessing the risk of material misstatements requires an auditor to:

  1. Identify and assess the risk of material misstatement, whether due to fraud or error
  2. Design further audit procedures to address the risk

While undertaking an audit for a trading company based out of the United Arab Emirates, the audit procedures led to the identification of VAT not being reported correctly.

Impact

- Enabling the company to undertake corrective actions for accurate reporting of VAT.

- Prevented cash outflows in terms of additional fines and penalties.

  1. Enhancing internal processes and control efficiency

External auditors evaluate the design and implementation of internal controls related to financial reporting and perform control testing to ensure how well control functions throughout the year (ISA 330 – Testing the operating effectiveness of controls)

Impact:

That testing highlights gaps between designed controls and operation, guiding management/ company towards improvements.

  1. Building the stakeholder confidence

The external audit was conducted based on the International Standards on Auditing which provide a globally accepted framework for external audit. In line with these standards ensure high-quality audits that boost the stakeholder trust.

Impact:

Stakeholders gain assurance the governance structures and control process are sound and that transparent audit reports provide the accuracy and fairness of the financial statements to get the future decisions of stakeholders.

Conclusion:

External audits offer measurable values far beyond the meeting the compliances. They improve the financial health and decision-making of the organization while building the stakeholder trust and interest. Hence, the external audit leverages the organization for long-term growth and sustainability.


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