B. External auditing

Public companies have to submit their financial statements to external auditors - independent auditors who do not work for the company. The auditors have to give an opinion about whether the financial statements represent a true and fair view of the company’s financial situation and results. (See Unit 3)

During the audit, the external auditors examine the company’s systems of internal control, to see whether transactions have been recorded correctly. They check whether the assets mentioned on the balance sheet actually exist, and whether their valuation is correct. For example, they usually check that some of the debtors recorded on the balance sheet are genuine. They also check the annual stock take - the count of all the goods held ready for sale. They always look for any unusual items in the company’s account books or statements.

Until recently, the big auditing firms also offered consulting services to the companies whose accounts they audited, giving them advice about business planning, strategy and restructuring. But after a number of big financial scandals, most accounting firms separated their auditing and consulting divisions, because an auditor who is also getting paid to advise a client is no longer totally independent.