Explain the value derived from the work of external auditors

Advantages of an audit

1. It provides assurance and credibility to the accounts in the audit report.
2. Disputes between management may be more easily settled. E.g. a partnership which has complicated profit sharing arrangements may require an independent examination of those accounts to ensure as far as possible an accurate assessment and division of those profits
3. Major changes in ownership may be facilitated if past accounts contain an unqualified audit report. For instance, where two sole traders merge their business to form a new partnership.
4. Applications to third parties for finance may be enhanced by audited accounts due to the credibility created by having the financial statements audited.
5. The audit is likely to involve an in-depth examination of the business and so may enable the auditor to give more constructive advice to management on improving the efficiency of the business.

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