Advantages of having and external audit to the company

The main advantages of having an external audit for a company:

1. Credibility and trust
   An independent auditor’s opinion gives confidence to shareholders, banks, investors, and regulators that the financial statements are reliable and not just “what management says.”

2. Lower information risk
   Audited financial statements reduce the risk of material misstatement, so users can make decisions (invest, lend, give credit) with less fear of being misled. This can lower cost of capital and make it easier to get loans.

3. Better internal control awareness
   Auditors often highlight weaknesses in processes (e.g. cash handling, purchasing, inventory control). Management can use these findings to tighten controls, reduce errors, and reduce fraud opportunities.

4. Fraud deterrence
   The presence of an external audit increases the perceived chance of detection. That alone discourages intentional manipulation or asset theft by employees or even by management.

5. Compliance with laws and regulations
   Many companies (especially public companies) are required by law to have audited financial statements. An audit helps directors fulfil their statutory duties and reduces personal exposure.

6. Improved governance and accountability
   The auditor reports to the shareholders, not management. This strengthens oversight of management (agency theory) and supports the board or audit committee in monitoring how management is running the company.

7. Easier access to funding / contracts
   Banks, investors, suppliers, grant bodies, and sometimes government tenders will only accept audited accounts. Audited numbers make external parties more willing to extend credit or award contracts.

8. Going concern assessment
   Auditors evaluate whether the company can continue operating for the foreseeable future. Early warnings on going concern issues give management a chance to act before a crisis becomes fatal.

9. Comparability and discipline
   The audit process forces proper application of accounting standards and consistent disclosure. That discipline improves year-to-year comparability and supports better internal decision-making by management themselves.