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Auditing, a staple of the accounting practice, is the process of examining the accuracy of financial statements and a company's financial reporting. In many cases, the audit also involves an inspection of the company’s – or individual’s – physical assets, such as real estate and equipment, or inventorying products. Auditors review not only the financial statements and records, but the client’s policies and procedures and their adherence to regulatory compliance. Auditors may work with an independent accounting firm or as consultants. In addition to their accounting and investigating abilities, auditors require good communication skills, so they can clearly present their findings to management and explain the improvements or changes needed.
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Audit Goals
The primary goal of an audit is to analyze a company's financial statements in order to improve its efficiency and identifying weaknesses. It’s not enough for an auditor to recognize a risk or problem – they must also come up with a plan for mitigation. Companies, or individuals, rely on investors or lenders having confidence in their financial statements, including the balance sheet, income statement, and cash flow statement. The auditor provides a professional opinion on whether those financial records are accurate and fair. What the auditor does not do is take responsibility for an individual’s or company’s financial statements and documents. That role falls squarely on the person or company. The auditor may not assume any duties generally considered the prerogative of management, including selecting accounting policies and procedures, reconciling accounts, preparing financial statements or establishing asset and liability values. It is essential that the auditor always remain independent.
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Auditors and Accountants
While some companies may use the terms “auditor” and “accountant” interchangeably, the positions require different duties. Educationally, requirements are the same, with a bachelor’s degree in accounting the minimum standard. Many CPAs work as either an auditor or accountant in some point in their career. Accountants are more likely to work for a company, while auditors are brought in from outside on a quarterly or annual basis. Accountants perform the daily financial work necessary for the firm, while auditors examine specific situations. For example, if a company suspects fraud may have occurred, it will have an auditor investigate its accounts and financial records in search of any evidence of malfeasance.
Types of Auditors
Auditors may specialize in various fields and may conduct many different types of audits. There are two major types of audits: external audits and internal audits. In an era when information technology is the keystone for virtually anything a business does, the need for information systems analysis is especially keen. Such auditors look at the entirety of a company’s technological infrastructure, assessing any type of risk and vulnerability in the process. The auditor provides a thorough report to management and makes recommendations for upgrading or replacing technology systems and risk minimization.
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An internal auditor, who works for the firm, reviews a company’s entire operations and financial reporting system. Naturally, internal auditors conduct internal audits. A complete audit of this type includes examining all records, as well as policies, procedures and compliance. The auditor then recommends changes in current company practices, outlining what he or she sees as potential issues. Once an internal review is complete and necessary changes made, the company’s management should feel confident it will do well when an external audit is conducted.
External auditors thus conducts external audits that evaluate a company using Generally Accepted Accounting Principles, which sets forth auditing standards for the United States and elsewhere. They often work with internal auditors for process coordination and to evaluate internal controls. However, external auditors either work independently or for a public accounting firm. The external auditor specifically looks for any risk of fraud or other financial impropriety. Their results, along with recommendations, are presented to the company’s management or a third party, such as the IRS.
Audit managers conduct ongoing examination and evaluation of various business components, including accounting, internal controls, finance, information technology and general operations. This job is often called either assurance management or risk management. Along with constant evaluation for business compliance, audit managers usually train and supervise new accountants and auditors to perform financial audits. They may also oversee IT audits.