There are familiar cases of disputes between partners of firms leading to loss. Auditing is a mandatory note with different advantages. Today most firms include auditing in their Partnership deeds. Most partnership businesses are audited taking into account the interests of partners. Disputes between partners of a firm risks the financial investments thereby risking the businesses. The frivolous attitude of the partners in resolving disputes makes things worse.
External Audits can put forth independent opinions on financial status. The first and foremost role of an external auditor is to put forth the reality of financial statements on behalf of its owners. External auditors primarily help in enhancing market confidence and trust. External audit programs specialize in financial reporting the factors that end in financial and material weaknesses or misstatements. Outsourcing or Co-sourcing internal audits are not viewed as external audits. External auditors are unbiased, and hence the reports are independent ones.
Different individual audits comprise an audit program, which provides information about the economic status in view with the effectiveness of control systems. The leading audit types are financial, operational, information technology, compliance, and fiduciary. External auditors are experienced professionals who can point out fraudulence or deceit in a financial statement. As external auditors work independently, they are free from influence and hence are unbiased. They make fair judgements and are sceptical during the audit. Auditors keep in line with the Code of Ethics for Professional Accountants by being independent in appearance and thinking.
Auditors entirely analyze
- Capitals contributed, and the share ratio agreed between partners
- Accounting year and nature of businesses
- Salaries and remunerations (if any) allowed for partners
- The interest of loans and interest rates on capital from partners
- Borrowing powers owned by partners
- Accounts settlement at the time of dissolution
- Goodwill valuation and its treatment within the book of accounts
- Other limitation if any on the powers of partners
Benefits of external audits to partnership firms
- An impartial and independent opinion on the financial status of the firm
- Maintaining updated accounts along with detecting fraudulence and errors, thereby making sure everything is in line with the conditions of the partnership agreement
- The presence of audited statements in firms helps to mediate loans and also in case of assessment of taxes
- In the case of retirement, death, admission of a partner, or sale of a business, the settlement of accounts becomes easier
- For advertising a better investment opportunity
- In allocating partition and profit dividend during the year