Discuss the Purpose of an External Audit and Its Role in the Auditor Large Companies

“Auditing has become an ubiquitous phenomenon in corporate governance and the public sector” Power, Michael. 1999. It is a structured examination of an organizations financial statements (balance sheet, income statement, cash flow) with focus on whether the accounting procedures and policies used to operate the business are in accordance with Generally Accepted Accounting Principles (GAAP). It is an annual review and generally conducted at the end of a firms’ financial period. There are two types of audit: Internal audit which is non-statutory, usually carried out by employees of the company whose focus is on the operations of the business, and external audit which is statutory, and carried out by an independent expert, who is focused on the financial statements. Many auditors specialize and perform specialists audit depending on the particular organization. The Company Act 2006(CA2006) require all company directors to present a full set of financial statements to their shareholders, ruling that the financial statements must undergo independent expert examination. Following   South Sea Bubble and the implosion (due to fraudulent business practices and accounting misstatements) of Enron, World.com, Global crossing, to name, but a few. As a Subsequence financial markets and investor trust was ruined with investors encountering huge losses. Evidently, the facts of these events have influenced the implementation of much tighter and stringent ruling of accounting and auditing procedures. The Sarbanes-Oxley Act (SOX) 2002, (passed by US congress and used worldwide) is an outcome of these corporate financial scandals. As a result there are now the strict reforms for the appointment of independent auditor and radical changes to the accounting profession regulations. The increased focus on independent audit has now become the accepted means by which business corporations report their operations and financial position.
External Audit
Shareholders of the firm...