What Is the Need for an External Audit

1629 Words Oct 31st, 2012 7 Pages
The need for an external audit in the case of companies arises primarily from the existence of split-up of ownership from control. When control is shared an audit report will be needed in order to ensure that all the partners or be it shareholders are on the same page as the managers (the ones who will be controlling the company) and know what has been happening in the company, what is happening at present and what can be expected to happen in the future in order to increase returns in the company. The case of an owner controlled company is different as usually the manager will be working in the company and will be aware of everything that will be taking place and will not need an audit report to find out what is going on. Since the …show more content…
Where the financial year started after April 2008 the parameters increased to, annual turnover less than 6.5 million pounds, balance sheet total less than 3.26 million pounds and average number of employees less than 50.When an owner controlled company satisfies the audit exemption parameters it can maintain that audit exemption for a full financial year afterwards even if the parameters were exceed in that following financial year. There are benefits in submitting abbreviated accounts as simpler and easier accounting records can be maintained reducing time spent on accountancy work. In addition although potential suppliers and financial institutions may require details of the year end financial accounts it is acceptable not to publish full details. In China, Owner controlled companies have an exemption from the audit and this gives management for smaller companies some newfound flexibility, Alyssa Martin says. Companies may not have to produce as much documentation or perform as much testing to produce management’s assertion as they might have had to produce for the sake of the audit, she says.“They can use other measures, like ongoing monitors or their own personal experience, to assess internal controls when they don’t have to have the external auditor auditing their process or leveraging their process in performing the audit of internal control,” notes Weaver’s Martin. Yong Xu, CFO for Jingwei International,
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