The purpose of an external audit is to develop a limited list of opportunities that could add value to the firm and threats that should be avoided. Finite means that external audit is not aimed at developing an exhaustive list of every possible factor that could influence the business rather it is aimed at identifying key variables that offer actionable responses.
External forces are divided among five major categories. Those five categories are discussed below;
- Economic forces: There are many factors that affect people and their buying pattern. It includes stock prices, interest rates, corporate profits, imports and exports. It also includes recession and disposable income. If people have more disposable income then they are able to buy more things. if there are more persons who earn money in family then the disposable is more.
- Social, Cultural, demographic and environmental forces: These forces have a major impact on various products, services, customers and markets. Changes in social, cultural forces impacts on all organizations whether it is for profit, non-profit, small or large being challenged by many opportunities and threats.
- Political, Governmental and Legal forces: Federal, state, local and foreign governments are major regulators, deregulators, subsidizers, employers and customers of organization. Political, governmental and legal factors therefore can represent many opportunities and threats for both small and big organizations.
- Technological forces: Revolutionary technological changes have a great impact on large organizations as well as small organizations. Technological forces includes technology in transportation, utility, healthcare, electrical and computer industries. Major technology is Internet. Internet is acting as national as well as global economic engine. Companies who do not adapt latest technologies faced loss. On the other hand, the companies who adapt latest technologies get success and create good image in the minds of consumers. It also helps in building a brand image and position the brand. While adapting latest technology, you must think how that particular technology helps in your organization and whether it would be acceptable by the customers or not?
- Competitive forces: An important part of an external audit is to identify your competitors, their strengths, weaknesses, capabilities, threats, opportunities, strategies and objectives. It is very necessary to gather information about your competitors and try to make strategies that are able to compete with competitors. It is as essential step if companies want to get success and make good strategy formulation. Competitors are the main assets which you have must study about them and keep an eye on them, their future strategies and tackle them smartly according to the needs and wants of consumers.
Process of an External Audit
First step while performing an external audit includes; company should gather competitive intelligence and information about economic, social, cultural and legal trends. Then it is the responsibility of individuals to monitor different sources of information which includes magazines and newspapers. After that, every individual is asked to submit those reports to the managers and committee. Once the information is gathered, it will then distribute and evaluated. Senior managers should conduct a meeting, discus and identify what are the opportunities and threats company would face in the future.