External

Audit in the
Business
Organization
s
J E F F R E Y R . AYA L A
Nature of External Audit
 The purpose of an external audit is to develop a finite list
of opportunities that could benefit a firm and threats
that should be avoided.
 As the finite suggests, external audit is not aimed at
developing an exhaustive list of every possible factor that
could influence the business.
 It is aimed at identifying key variables that offer
actionable responses.
 Firms should be able to respond to the factors by
formulating strategies that take advantage of external
opportunities or that minimize the impact of potential
threats.
External Forces the Affects
Business Organizations
Economic Forces - refer to the nature and
direction of the economy in which business
operates.

Examples: Inflation rate, Depletion rate,

Unemployment, Monetary Policy, Recession,
Interest rate, and Foreign Exchange, etc.
External Forces the Affects
Business Organizations
Social, cultural, demographic, and natural
environmental forces – refers to the societal
impact to a business organization, hence the
behavior of the society in relations where as
the business organization is located and the
implication of the natural resources with in the
region.

Example: (Air, water, noise, pollution),

External Forces the Affects
Business Organizations
Political, Governmental and Legal forces –
refers to policies, laws, political issues of a
country that the business organization is based
and having engaging activities that affects the
firm’s business transaction.

Examples: political conflicts, amendments,

government regulatory, passing of bills,
government sanctions, and law
implementation, etc.
External Forces the Affects
Business Organizations
Competitive forces – refers to the factors and
variables that threaten a company's
profitability and prevent its growth. They are
generally grouped into two categories: ...
Intensity of direct competition measured by
number of competitors, degree of product
standardization, amount of excess production
capacity.

Example: Direct and indirect competitor’s

External Forces the Affects
Business Organizations
Technological forces - affecting business are
all externally generated changes in
technologies and processes which are used (or
may be used) by the company or its
competitors

Examples: hardware, software, equipment's

and machinery
Porter’s Five Forces Model
Forecasting tools and techniques
Forecasts are educated assumptions about future trends and events. Forecasting is a complex activity
because of factors such as technological innovation, cultural changes, new products,
improved services, stronger competitors, shifts in government priorities, changing social values,
unstable economic conditions, and unforeseen events. Managers often must rely on published
forecasts to effectively identify key external opportunities and threats.
A sense of the future permeates all action and underlies every decision a person makes.

Example: Straight line, Moving average, Simple linear regression, and Multi linear regression
EFE and CPM
External Factor Evaluation matrix - (EFE) Competitive Profile Matrix - Matrix (CPM) is a
Matrix allows strategists to summarize and tool that compares the firm and its rivals and
evaluate economic, social, cultural, reveals their relative strengths and
demographic, environmental, political, weaknesses
governmental, legal, technological, and
competitive information
Thank You !!!