An auditor is a professional who examines and evaluates an organisation’s financial statements to ensure that they are accurate. They also review the internal controls of a company to make sure that they are effective. Auditors play an important role in ensuring the accuracy of financial statements and helping to protect investors, donors, and other stakeholders.
Types of auditors
- External auditors
An external auditor is an independent professional who examines the financial statements of an organisation to ensure that they are true and fair. They also review the internal controls of to make sure that they are effective. External auditors are an essential component in building public trust in institutions and guarding against the excesses of senior management. Investors and other interested parties rely on the external audit to provide credible assurance that an organization’s financial statements, taken as a whole, present a true and fair view and comply with the relevant financial reporting framework. External auditors also provide valuable assurance on other related aspects of corporate governance and performance reporting, such as internal controls and risk management.
- Internal auditors
An internal auditor is a financial auditor who works inside an organization to help determine whether individuals within the company are complying with internal rules and policies designed to prevent financial fraud. The main goal of an internal auditor is to reduce the chance that an organization loses money or experiences other types of fraud. Internal auditors are not involved in the day-to-day running of the business, nor do they have line management responsibilities. However, their in-depth knowledge of the company’s operations and finances can often provide more effective guidance on a wide range of issues than external consultants or accountants.
- Compliance auditors
Compliance auditors are experienced accountants or other business professionals who work for a variety of organizations. These auditors play an important role by assisting with compliance audits, monitoring the adequacy of the risk management and governance processes, and meeting various legal requirements. They are responsible for preparing a formal report to the management and highlighting any issues or key risks that have been observed. Most of them have formal education in relevant fields and must possess at the very least a degree in accounting or business administration. They must also be familiar with international financial reporting standards (IFRS) to be successful in the role.
- Forensic auditors
A Forensic Auditor is an individual with a professional qualification in auditing, supplemented by additional training in fraud examination and forensic investigation. The role of a forensic auditor can involve investigating embezzlement, mismanagement of funds, corruption, and other improprieties within organizations, businesses, and corporations. It’s a specialized field that combines accounting skills with investigative techniques, audit procedures, and sometimes knowledge of computer forensics. It encompasses a wide variety of legal services, including expert witness testimony and fraudulent claims investigations.
Roles of an auditor
Ensuring accuracy of financial statements: The role of the auditor is to express an opinion on the fairness with which the financial statements present, in all material respects, the financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. Auditors achieve this through presenting an opinion on the financial statements as a whole (i.e., overall opinion) and by reporting any departures from applicable accounting principles through explanatory paragraphs or as separate documents.
Preventing fraud: Auditors are responsible for detecting and preventing financial statement fraud. Strong internal control procedures can effectively discourage management from committing fraud. These mainly include engagement acceptance and continuance and audit planning. The two other procedures involved in creating a strong deterrence effect are analytical procedures and internal control assessment, performed during the preliminary survey and substantive testing phases.
Providing consulting services: The primary roles of an auditor include providing various levels of assurance services and consulting services. Assurance services include financial audits. Consulting services may include tax advice, business strategy, planning support and information technology implementation, among others. An auditor also provides professional accounting services and advice to ensure statutory requirements are met, maintain accurate records, and minimize tax liability. Such professional staff are required by the business, non-profits, individuals, and government agencies.
Evaluating internal controls: The auditors also evaluate the effectiveness of an organisation’s internal controls and apply their findings to planning the substantive audit tests. Auditors consider five areas when assessing internal control:
- Control environment – The overall attitude, awareness and actions surrounding management’s responsibility for establishing a framework for control within the organization.
- Risk assessment – The process by which audit objectives are identified, risks that could impede the achievement of those objectives are analyzed and assessed, and responses to those risks are planned and implemented.
- Control activities – The policies and procedures that help ensure that management directives are carried out. Information and
- communication – The processes used to identify, capture, distribute and communicate information needed to run the business effectively.
- Monitoring – Processes used by management to track the quality of business activities on an ongoing basis, ensuring that they happen as planned.
Providing training: Auditors play a significant training role for the management staff, who are to present the organization’s goals and policies. They often train on the procedures required to achieve those objectives as well as on goal setting and decision making at different levels within an organization. The auditors need to motivate their clients by helping them feel more involved in their duties by training them on the latest advancement in technology, which often leads to less audit involvement. In addition, auditors can play a major role in ensuring that relevant data is collected in order so that meaningful analysis can be done and provide valuable insights to management.
What Makes a Good Auditor?
- Integrity
Integrity is crucial to the success of an auditor in performing his or her responsibilities. An auditor’s role frequently calls for him or her to make impromptu decisions, which need to be made according to the ethical standards and professional code of conduct issued by IFAC and in the best interests of all parties involved. A good auditor must be honest and ethical. They must maintain the trust of their clients by always acting with integrity.
- Competence
A good auditor must be competent and knowledgeable in accounting and auditing principles. Competence is a necessary foundation for the exercise of professional skill, judgment, and diligence required in the performance of an audit. Accordingly, an auditor’s competence can affect the quality of the audit. Audit competence is not limited to technical knowledge and experience. The ability to apply knowledge and experience effectively in a particular set of circumstances also is important.
- Professionalism
Professionalism is vital for the success of any audit. No matter how great the team is, if they do not behave in a professional manner they will not be able to provide an effective audit. Being professional means that the auditor: Has sufficient audit knowledge and experience Displays high standards of behavior (i.e. respectful towards others, punctual, polite, well-dressed, etc.) Presents themselves well in body language, demeanour and the way they communicate Does not allow personal feelings to interfere with the audit process. Uses their power and authority wisely. Is trustworthy and honest. Uses good judgment. Is consistent in their advice and behaviour. Attempts to understand clients’ issues. Uses an empathic listening style. Has good interpersonal skills. Is polite and honest.
- Timeliness
Timeliness is vital to the auditing process. Just as with any other service-based industry, punctuality is a fundamental quality to excellent customer service. A good auditor should be able to complete an audit in a timely manner and deliver the results of their work before the client’s deadline.
- Quality control
Quality control is vital to maintaining optimal productivity and excellent customer service. Auditors are expected to be accurate, precise, detailed and fair. They should have a sound understanding of measurement, along with the ability to do advanced calculations.
- Confidentiality
Confidentiality control is a vital part of the audit process. Typically, client confidentiality control is defined in a contract between the auditor and client. It is therefore legally binding, with serious repercussions if the confidentiality control is breached by either party. An auditor must maintain strict confidentiality. Failure to do so will result in loss of confidence from immediate superiors, clients, and the stakeholders in the long term. This may lead to a loss of respect from stakeholders who may go as far as writing to complaints boards so as to destroy their reputation.
Conclusion
An auditor is a crucial part of any organisation. They play an important role in ensuring the financial stability of an organisation and act as a watchdog over finances. While there are many qualities that make a good auditor, some of the most important include being detail-oriented, analytical, and objective. An auditor’s job is not always easy, but it is critical to the success of any business. With their skillset and knowledge, they can help businesses stay on track and avoid costly mistakes. Ultimately, the importance of an auditor cannot be overstated – they play an essential role in safeguarding the financial wellbeing of a company. If you are in the process of an auditor rotation or are considering a new auditor, do not hesitate to contact us at FHC, a listing of our services can be found here.
