[1] Users of these entities' financial information, such as investors, government agencies, and the general public, rely on the external auditor to present an unbiased and independent audit report.
The manner of appointment, the qualifications, and the format of reporting by an external auditor are defined by statute, which varies according to jurisdiction.
For public companies listed on stock exchanges in the United States, the Sarbanes-Oxley Act (SOX) has imposed stringent requirements on external auditors in their evaluation of internal controls and financial reporting.
Securities and Exchange Commissions may also impose specific requirements and roles on external auditors, including strict rules to establish independence.
In compilation auditors are required to take a look at financial statement to make sure they are free of obvious misstatements and errors.
The independence of external auditors is crucial to a correct and thorough appraisal of an entity's financial controls and statements.
These rules also prohibit the auditor from owning a stake in public clients and severely limits the types of non-audit services they can provide.
The primary role of external auditors is to express an opinion on whether an entity's financial statements are free of material misstatements.
The foreseeability standard will not likely be widely adopted anytime soon because the cost (time and financial) of litigation would be enormous.