External Audit
External Audit is an independent examination of a company’s financial statements conducted by a third‑party auditor to verify accuracy, compliance, and fairness.
In Filipino MSME terms: ito yung “pagsusuri ng panlabas na auditor” para tiyaking tama ang financial records, walang daya, at sumusunod sa accounting and tax rules.
External audits provide credibility and transparency to stakeholders, investors, and regulators.
Why External Audits Matter
For Filipino MSMEs and corporations, external audits are important because they:
- Ensure accuracy of financial statements
- Build trust with banks, investors, and partners
- Identify errors or fraud in accounting records
- Support compliance with BIR, SEC, and regulatory requirements
- Improve internal controls and financial processes
External audits are required for corporations registered with the SEC and businesses above certain revenue thresholds.
What External Auditors Review
- Financial statements (Balance Sheet, Income Statement, Cash Flow)
- Accounting records and supporting documents
- Internal controls and financial processes
- Compliance with accounting standards (PFRS)
- Tax compliance and regulatory filings
Example / Context
Example 1 (Corporation):
A medium‑sized corporation hires an external CPA firm to audit its annual financial statements for SEC filing.
Example 2 (MSME Applying for a Loan):
A business undergoes an external audit to strengthen its financial credibility before applying for a bank loan.
Example 3 (Investor Requirement):
An investor requests audited financial statements before investing in a startup.
Example 4 (Internal Issues):
A company requests an external audit after noticing inconsistencies in its accounting records.
Related Terms
FAQs
1. Who conducts an external audit?
Independent CPAs or accredited auditing firms, not employees of the company.
2. Is an external audit required for all businesses?
No. It is mandatory for SEC‑registered corporations and businesses above certain thresholds, but optional for small MSMEs.
3. How long does an external audit take?
It depends on business size and record quality, usually from a few weeks to a few months.
4. What happens after an external audit?
The auditor issues an audit opinion stating whether the financial statements are fair and accurate.