What is 'external auditing'?

External auditing refers to the independent examination of an organization's financial statements by a qualified auditor, whose objective is to express an opinion on the fairness and accuracy of those statements. This process involves evaluating the financial records and reporting to ensure compliance with accounting standards and applicable regulations. The auditor's opinion provides assurance to stakeholders, such as investors and creditors, that the financial statements present an accurate portrayal of the company’s financial position and performance.

This independent viewpoint is crucial because it helps to enhance the credibility of the financial information reported by the company. The external auditor typically operates separately from the company's internal operations, thus providing an unbiased assessment that increases stakeholder confidence.

In contrast, the other options focus on different aspects unrelated to external auditing. An internal review of company policies pertains to operational reviews and governance rather than financial statement accuracy. Examination of tax returns relates specifically to taxation, which is not the primary focus of external auditing. The process for employee assessments concerns human resources and performance evaluations, making it irrelevant to the financial auditing context. Each of these topics, while important in their own right, does not capture the essence of what constitutes external auditing.