An external audit provides management, investors, and lenders confidence that financial reporting presents an accurate view of the company’s financial performance. 

External audits have become more crucial in light of constantly evolving compliance regulations. New regulatory requirements, global tax changes, and new fraud schemes also pose continuing challenges. 

What Is External Audit? 

External audits are an independent assessment of your financial statements, records, and internal controls. The goal is to validate processes to ensure the accuracy and effectiveness of your financial management and identify any areas that need improvement. 

External audits are performed by third parties to provide a comprehensive review of your financial practices. An external auditor will typically review your: 

• Reporting accuracy 
• System configurations 
• Access controls 
• Transaction processing 
• Data integrity 
• Compliance 

The Benefits of External Audits 

There are several key benefits organizations get from conducting external audits that go well beyond check-the-box compliance. 

Producing Financial Transparency 

With an external audit, you get an unbiased assessment to ensure the information is complete, accurate, and complies with accounting and industry standards. This creates greater transparency to build trust within your company and with investors or lenders. You also get increased accountability. 

Ensuring Compliance 

External audits help companies meet legal and regulatory obligations, provide peace of mind, and help avoid potential fines or legal repercussions. 

Validating Internal Controls 

During the audit process, an external auditor will assess the effectiveness of your internal controls. This process helps identify any gaps in policies or controls, highlighting areas for improvement. Strong internal controls help maintain internal compliance and reduce the risk of errors or fraud. 

Enhanced Decision Making 

The insights from your audit can give you confidence to make decisions. When you understand your financial position and risks, you can move forward, developing more effective strategies. 

The Process of External Audits 

An external auditor typically follows a few key steps, including: 

• Planning and Preparation: Working closely with your finance team to understand operations, internal control systems, and any specific risks or areas of concern. 
• Data Collection and Review: Compiling and analyzing financial records, documents, and other relevant information to assess the accuracy and completeness of your financial statements. 
• Evaluation of Internal Controls: Evaluating the design and effectiveness of the organization's internal control systems, identifying any weaknesses or areas for improvement. 
• Substantive Testing: Performing tests, such as sampling and analytical reviews, to verify the validity and accuracy of the financial information. 
• Reporting and Recommendations: Preparing a report that outlines their findings, issues or discrepancies, and recommendations for improvements. 
• Follow-up and Remediation: Addressing any concerns or weaknesses identified in the audit report, and implementing corrective actions. 

Key Considerations for Successful External Audits 

To make the external audit process run more smoothly, here are a few tips to consider. 

Collaboration 

Some financial team members worry about audits catching them doing something wrong. However, an external audit can validate their work and find areas for remediation to improve outcomes. Rather than catching them doing something wrong, an audit can make sure proper policies, procedures, and safeguards are in place. This, in turn, makes the job easier for finance teams. 

Providing auditors with complete information, and being willing to engage transparently, will greatly improve the audit process. Timely responses to inquiries from auditors will also help prevent delays. 

Rather than hoping auditors don’t notice any areas of concern, pointing them out can provide faster resolution and give you confidence that you have the right systems in place. 

Preparation of Records 

Making sure documentation is accessible and organized can help streamline the audit process and reduce costs. Relevant documentation of financial records, internal controls, and systems is a key part of the process. Unorganized data dumps will only extend external audits and may make them more costly. 

The Right Systems and Policies 

A fundamental principle of effective internal controls is the segregation of duties to make sure that no single person can initiate, approve, and record transactions without some level of oversight. Reviewing user rights, roles, permissions, and approval workflows ensures there are checks and balances in place. 
 
In preparing for an external audit, companies should review their policies and workflows to make sure proper segregation is in place. There should also be a reviewable audit trail on every transaction along with supporting documentation. 

The Right Technology 

94% of executives agree that advanced technology can promote the quality of audits. By embedding intelligent spending reviews throughout your workflow, you can significantly reduce noncompliance and exceptions in your expense reporting. 

Automating the internal audit process is 36% more efficient for expense report intake and handling and results in 65% more expense reports that are compliant with company policies. This provides better internal auditing, which in turn makes any external auditors easier and less expensive. 

Managing Expectations 

Finance leaders need to make sure team members know what’s expected. In a best-case scenario, no audit adjustments are needed. By setting this as the bar, you signal to everyone on your team that accurate, quality financial reporting and efficient systems are a priority. 

If discrepancies or weaknesses are discovered as part of the audit process, they must be dealt with promptly to avoid creating larger problems down the line. 

Common Challenges in External Audits 

Here are some of the more common challenges organizations see when conducting external audits. In each case, accurate data, collaboration, and communication are key to overcoming these challenges. 

• Complex Regulatory Environment: Navigating the landscape of financial reporting standards and regulations can be a significant challenge, requiring ongoing compliance efforts and proactive responses to changes. 
• Data Availability and Quality: Ensuring that financial data is accurate, complete, and readily available can be complex — especially if you have dispersed or legacy systems. 
• Coordination and Communication: Effective coordination between your internal team and the audit team is essential for a successful external audit. 
• Resource Constraints: External audits can be time-consuming and tie up significant resources, both in terms of financial and personnel commitments. 
• Resistance to Change: Recommendations by external auditors for changes often face resistance from within the organization. 

Adopting Automation Can Help 

Automating T&E management solutions, such as those offered by SAP Concur, can help streamline your travel and expense management process and streamline external audits. Creating a centralized, automated, and transparent system for managing employee expenses, travel booking, and reimbursements, SAP Concur solutions provide an easy way to reduce noncompliance and exceptions. 

By adding on to Concur Expense,  you can help facilitate strong systems and streamline audits. 

Concur Intelligent Audit is backed by the global team of auditors at SAP Concur, leveraging smart technology to identify potential fraud, drive tax and regulatory compliance, and resolve exceptions. 

Concur Verify automates processes to provide auditors with more visibility into spending. For example, Concur Verify can identify duplication, unintentional errors, and out-of-policy spending — uncovering patterns that manual processes miss. 

Concur Detect by Oversight uses AI and machine learning to automatically analyze expense reports, accelerate the auditing process, and resolve issues. This lets internal or external auditors focus attention on high-risk issues, allowing automation to approve low-risk expense reports and eliminate manual processes. 

Audits occur both pre- and post-payment. Learn more about these options and compare them side-by-side. 

By auditing your spend, you can uncover and remediate issues promptly. Download our eBook “5 Ways Efficient Audits Can Help Fuel Growth for Digital Transformation” to learn actionable ways to reduce exceptions over time and assess your current audit efficiency.