What Does an Auditor Do? How it Differs from an Accountant

What is an auditor

An auditor is a professional who examines accounts and provides assurance that financial records have been prepared accurately, completely and provide a true and fair picture of business operations. 

Not only the auditor provides an independent assertion that records are accurate, it is also job of an auditor to give an assurance to the stakeholders of a company that financial documents sufficiently back the records made in the financial statements. 

what does an auditor do

What is the purpose of auditing

The primary objective of auditing is to ensure that the financial statements that the company presents, which provide a picture of the company operations, have been independently reviewed for accuracy, completely and adherence to accounting standards and regulatory compliance. 

Since the shareholders and other stakeholders of a company are not present and do not have any direct means of ensuring that the company doesn’t fudge its financial figures, they use the role of an auditor who acts independent of the management of the company to vouch for the financial statements prepared by the management. 

Types of auditors

Auditors can be mainly of two types. Internal auditors and external auditors. External auditors are the auditors which are independent of the company and perform the functions described above. Most of the internal auditors follow guidelines and standards prescribe by Institute of Internal Auditors.

What does an internal auditor do? Internal auditors are employees of the company, and they also perform similar functions as external auditors but their work is mostly focused on providing assurance to the management on the effectiveness of internal controls.  

Internal auditors review assess financial operations and review controls that the management has put in place for efficient and fraud free operations of the company. 

The key difference between an external auditor and an internal auditor is their scope of operations. While external auditors reports are mandatory and statutory (required by law)  in nature, internal audit is a voluntary function of the organization to help management get a continued assurance that its operations are efficient and internal controls are in place and working. 

Another type of distinction between different types of auditors can also be based on the types of different work the auditors do: 

Financial auditors: They are the most commonly known auditors who certify the accounts prepared by the accounting/finance department of a company. 

Forensic auditors: These auditors use their knowledge of accounting and combine this with understanding of laws to find out financial fraud and financial crimes. 

Information systems auditors: These may be external as well as internal auditors. IS auditors perform review of information system that a company uses and report on the presence and effectiveness of computer controls related to information systems. 

Advisory auditors: Sometimes the auditors also work with the management in advisory capacities in improving the controls and systems. However, there should not be a conflict of interest.

For example an auditor can never be expected to audit a system for which he has worked in an advisory capacity at the designing and implementation stage. 

Difference between an accountant and auditor

What does an accountant do? They record financial transactions and other related data and prepare accounts and financial statements of the company. 

What does an auditor do with these statements prepared by the accountants. The auditors examine these financial statements and related financial documents and prepare their reports which are published as part of the financial statements. 

Briefly, the law requires that company publish audited financial statements. The accountants prepare un-audited financial statements which become audited financial statements after these have been audited by auditors.

So, if you want to understand what is auditing in accounting, it is sufficed to understand that accountants prepare financial statements of the company and auditors come at a later stage for independent review of these statements with their report.

Only the financial reports that have been reviewed by the auditors are accepted for statutory purposes. 

What qualifications are required for auditor

The primary qualification for becoming an auditor is Certified Public Accountant which is administered by American Institute of Certified Public Accountants. Different countries have similar bodies that regulate accountancy education, training and certification.

The entry level auditors not only qualify the CPA exam, but they also undergo a long supervised training at accounting firms who work as external auditors to companies. 

Bottom line

I hope this serves as a basic understanding of what does an auditor do for his work. Primarily, auditors work as agents of the shareholders to gain assurance that the financial data that the company has presented can be relied on for decision-making.

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