External Audit: why engage one and what are the benefits for the company?
Ensuring the transparency and reliability of financial statements and improving the quality and security of financial reporting: engaging an external audit or independent audit strengthens corporate governance and the continuous improvement of the company’s internal processes, while also supporting management in decision-making.
Independent audit involves the analysis and validation of financial statements in light of current accounting standards, requiring auditors to have a deep understanding of the business and the industry in which the company operates. The audit firm also supports management in identifying and mitigating risks in view of the applicable regulatory requirements.
Furthermore, some companies are required by current legislation to present their Financial Statements duly audited by an independent audit firm registered with the Securities and Exchange Commission (CVM).
We can refer here to Law 11,638/07, which sets out the criteria establishing the mandatory requirement to engage an external audit for the examination of financial statements, among which we can highlight some of them:
- Large corporations (Sociedades Anônimas), whether publicly or closely held (Law 6,404/07, as amended by Law 11,638/07, which introduced the requirement to submit to an independent audit by an auditor registered with the CVM);
- Large companies, defined as those with total assets exceeding R$240 million or annual gross revenue exceeding R$300 million, are required to have their financial and accounting statements audited by independent auditors, as set forth in the excerpt below:
“Art. 3. The provisions of Law No. 6,404, of December 15, 1976, regarding bookkeeping and preparation of financial statements and the mandatory requirement of independent audit by an auditor registered with the Securities and Exchange Commission.”
Sole paragraph. For the exclusive purposes of this Law, a company or group of companies under common control that had, in the preceding fiscal year, total assets exceeding R$ 240,000,000.00 (two hundred and forty million reais) or annual gross revenue exceeding R$ 300,000,000.00 (three hundred million reais) shall be considered large-scale."
There is also the compliance dimension, as the external audit (or independent audit) ensures the credibility of the reported results for shareholders, the board of directors, and other stakeholders with an interest in the company's performance. The benefits of conducting an audit may be significant for:
- Companies undergoing merger, acquisition, incorporation, sale, or other related processes, whether by statutory requirement or because senior management seeks to remain in compliance throughout the process, and which ensure transparency and credibility for all parties involved by engaging an independent audit;
- Third-sector entities, foundations, and non-profit institutions, which must account for their financial and accounting processes and ensure credibility and compliance in their results and calculations; and
- others.
To ensure the required reliability in the analysis of financial statements, the independent audit must be conducted by firms with proven audit experience, given the considerable complexity and responsibility involved in the process, and which demonstrate ethical standards and a strong track record in the market.
The audit firm must hold all registrations required to fully perform its functions, such as registration with the CRC, CNAI, CVM, among others.
If you have questions and would like to have an audit conducted at your company, please contact us, we will be happy to help: https://apter.rds.land/audit
