An external audit refers to an independent examination of the financial statements of an organization by a third-party auditor who does not have any relations with the company being audited. This impartial auditor is tasked with providing an opinion on whether the financial statements present a true and fair view of the company's financial position and performance, in accordance with the applicable accounting standards and principles.

The purpose of an external audit is to provide stakeholders like shareholders, creditors, and regulators with confidence in the financial statements prepared by the organization. During the audit process, external auditors evaluate the internal controls put in place by the company, assess risk management practices, and scrutinize transactions and supporting documents to detect errors or instances of fraud. For example, an external auditor might verify that revenues reported in the company's income statement accurately reflect sales transactions completed during the reporting period.

External audits often culminate in the issuance of an auditor's report, which expresses either an unqualified opinion (indicating financial statements are accurate with no material misstatements) or qualified opinions that highlight concerns or deviations. By ensuring transparency and trustworthiness in financial reporting, external audits play a crucial role within corporate governance.