Auditor Meaning

Audits correct accounting errors and expose frauds. Moreover, thorough auditing discourages malpractices from occurring in the first place. Auditors gather evidence to back their conclusions. Aspiring candidates can attain a bachelor’s degree in business, finance, or accounting. The demand for auditing is increasing and, therefore, is a lucrative career option.

Key Takeaways

  • Auditors are qualified professionals who analyze firms’ financial records to detect misrepresentations or discrepancies if any. They ensure business’ compliance with various tax laws and regulations. Audits could be internal, external, governmental, forensic, or technological. On top of degree qualifications, aspiring candidates can get certified as public accountants (CPA). In the US, audit professionals average around $63524 every year.

What does an Auditor do?

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Auditors verify the authenticity of financial statementsFinancial StatementsFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more. They gather evidence for material transactions. The aim is to deduct possible misstatements and frauds. Moreover, thorough audits discourage malpractices from occurring in the first place.

Audits can be internal or externals. Internal auditsInternal AuditsInternal audit refers to the inspection conducted to assess and enhance the company’s risk management efficacy, evaluate the different internal controls, and ensure that the company adheres to all the regulations. It helps the management and board of directors to identify and rectify the loopholes before the external audit.read more are conducted by the in-house personnel, whereas external auditsExternal AuditsExternal Audit is defined as the audit of the financial records of the company in which independent auditors perform the task of examining validity of financial records of the company carefully in order to find out if there is any misstatement in the records due to fraud, error or embezzlement and then reporting the same to the stakeholders of the company.read more are conducted by independent professionals. Audits focus on GAAPGAAPGAAP (Generally Accepted Accounting Principles) are standardized guidelines for accounting and financial reporting.read more compliance of financial statements. Once the audit is completed, an audit reportAudit ReportAn audit report is a document prepared by an external auditor at the end of the auditing process that consolidates all of his findings and observations about a company’s financial statements.read more is released to the management. The audit report comprises conclusive analysis and recommendations.

Auditor Responsibilities and Duties

The responsibilities of an auditor are as follows.

  • Planning: Auditors make audit plansAudit PlansAn audit plan refers to the design of an audit describing the overall audit strategy and guidelines to follow while performing the audit. read more to complete the workload efficiently. They follow a systematic approach from start to finish.Reviewing Financial Statements: They inspect details mentioned in the financial statements.Documentation: They record the material issues and findings as soon as they detect them.Collecting Evidence: After going through the accounts, they make conclusions. But they also gather evidence to support their claims. They inspect material proof to inspect the authenticity of financial statements.Examining Internal Controls: An internal audit checks the efficiency of internal controlInternal ControlInternal control in accounting refers to the process by which a company implements various rules, policies, or procedures to ensure the accuracy of accounting and finance information, safeguard the various assets of the business, promote accountability in the business, and prevent the occurrence of frauds in the company.read more systems and management policies.Checking Legal Compliance: Regulations keep changing; therefore, ensuring legal compliance is a crucial function of an audit.Issuing Audit Report: Based on the evidence, these professionals formulate a detailed report. The report comprises conclusions, observations, root-cause analysis, and best practice suggestions.

Auditors are legally bound to fulfill the following duties:

  • Interrogate the Facts: Auditors must ask questions to the authorized person to gather evidence that can corroborate facts and figures mentioned in the financial statements.Give Unbiased Opinion: They should make reliable statements and disclose the details without being partial to the firm.Confine with Audit Standards: They should comply with the audit standards set by the government and regulatory bodies.Report Fraudulent Practices: They must expose any misrepresentation or inaccuracies found in the financial records.Follow Professional Code of Ethics:  They must uphold ethical codes—confidentiality, integrity, competency, and objectivity.

Qualification

Aspiring candidates must possess the necessary educational and statutory qualifications as prescribed by domestic law. Aspirants can attain a bachelor’s degree in business, finance, or accountingAccountingAccounting is the process of processing and recording financial information on behalf of a business, and it serves as the foundation for all subsequent financial statements.read more. Then they can go for a Certified Public Accountant (CPA) certification provided by the American Institute of Certified Public Accountants (AICPA). Further, they can secure an advanced (master) degree in accounting, business, finance, or other associated fields to become an expert.

Practical knowledge of accounting software used by the organization is an added bonus. Audit professionals must keep up with the changes and development in auditing. Also, they must have a good understanding of business operationsBusiness OperationsBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company’s goals like profit generation.read more pertaining to the specific organization. This is crucial for collecting evidence.

Skills

Having a degree is not enough. Apart from the qualifications mentioned above, aspiring candidates must possess the following traits to become successful in the field of auditing.

  • Knowledgeable: Professionals must be familiar with the various accounting policiesAccounting PoliciesAccounting policies refer to the framework or procedure followed by the management for bookkeeping and preparation of the financial statements. It involves accounting methods and practices determined at the corporate level.read more, laws, statutes, and concepts.Tactful: They should be problem solvers—deal with serious issues during the audit process.Reliability: A lot of trust is put on the audit report considering that it is prepared by a highly skilled professional.Integrity: They must be assertive and should not succumb to any undue influence.Independent: There is a level of subjectivity involved in interpreting data. Audit professionals must be able to work alone—with very little assistance.Analytical Skills: It all boils down to judgment calls. Audit professionals must thoroughly inspect the financial records.Confidentiality: They are trusted with sensitive information and must maintain discretion, divulging information only when required by law.

Types of Auditors

The types of auditors can be differentiated based on their service and appointment:

#1 – Internal Auditors

Companys’ in-house employees conduct internal audits. They are responsible for establishing proper internal control systems and formulating measures to prevent fraud and compliance issues. In-house audit personnel report directly to top-level management.

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#2 – External Auditors

External audit professionals do not serve a particular firm. Instead, they are independent external parties who provide an impartial audit report to the shareholdersShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company’s total shares.read more, investors, general public, and government agencies.

They must comply with the auditing proceduresAuditing ProceduresAudit Procedures are steps performed by auditors to get evidence regarding the quality of the financial information provided by the management of a company. It enables them to form an opinion on financial statements and ensure whether they reflect the true and fair view or not. read more set forth by the International Federation of Accountants (IFAC) committee and the International Auditing and Assurance Standards Board (IAASB).

#3 – Government Auditors

The government authorities appoint professionals to inspect the financial records of publicly funded programs. Further, they help the government with budgetingBudgetingBudgeting is a method used by businesses to make precise projections of revenues and expenditure for a future specific period of time while taking into account various internal and external factors prevailing at that time.read more and cost analysis. They track the government revenueRevenueRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions.read more and expenditure to ensure compliance.

#4 – Forensic Auditors

Law enforcement agencies appoint forensic auditors to conduct a detailed analysis of financial records that are suspected of possible fraud.

#5 – Information Technology Auditors

An IT audit reviews the efficiency of a firm’s technological infrastructure—software, systems, cyber law compliance, and data security.

Career Scope

An audit is a huge responsibility—stakeholders, public, and government authorities rely on audit reports. Aspiring candidates need financial knowledge and the ability to draw meaningful conclusions out of financial records. It is a good option for an individual with a keen eye for detail.

The global economyEconomyAn economy comprises individuals, commercial entities, and the government involved in the production, distribution, exchange, and consumption of products and services in a society.read more is on the rise—businesses are expanding—the demand for auditing is increasing. For many businesses, periodic audits are mandated by law. Therefore, auditing will never become obsolete.

Salary

According to a 2022 Indeed report, auditors in the US average around $63524 every year. Professionals with less than a year of experience average $59015 a year. Those with ten or more years of experience earn around $77092 a year. DISYS rewards talents by going as high as $219706 per annum, whereas USAA parts with as much as $173867 every annum. The US Air Force offers audit professionals $114770 annually.

This has been a guide to who is an Auditor and its meaning. Here we explain the responsibilities and duties of an auditor along with their types, skills, salary, types, and qualifications. You can learn more about auditing from the following articles-

Aspirants can pursue a bachelor’s or master’s degree in accounting, business, finance, and similar fields. The certified public accountant (CPA) license is essential for bachelor’s degree holders. Once recruited, professionals are liable to report inaccuracies and fraud if and when encountered.

In-house employees are usually hired by the firm’s directors, while external professionals are appointed by the company’s shareholders or by government authorities.

The very objective of an audit is to unfold discrepancies and misrepresentations in financial records. Therefore, professionals must report misstatements to the concerned authorities.

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