External auditor

Definition

An external auditor is an independent professional who examines and evaluates the financial statements of an organization to ensure accuracy and compliance with accounting standards. They provide an unbiased opinion on the financial health and internal controls of the entity.

5 Must Know Facts For Your Next Test

1. External auditors are hired by shareholders or stakeholders, not by the company's management.
2. They assess the risk of fraud by evaluating internal controls and company policies.
3. External auditors must adhere to generally accepted auditing standards (GAAS).
4. Their audit reports can influence investor confidence and decision-making.
5. External auditors often collaborate with internal auditors but maintain independence to avoid conflicts of interest.

Review Questions

Related terms

Internal Auditor:

An employee within a company who evaluates and improves the effectiveness of risk management, control, and governance processes.

Generally Accepted Auditing Standards (GAAS): A set of systematic guidelines used by auditors when conducting audits on companies' financial records.

Fraud Risk Assessment:

The process of identifying and analyzing risks that could lead to fraudulent financial reporting or asset misappropriation.