What Does An Auditor Do?
"I initially thought that accountants and auditors performed the same functions. I just learned that they don't. I am more acquainted with the responsibilities of accountants but not that of auditors. What does an auditor do?"
asked by Lola T. from New Castle, Delaware
Auditors deal with financial records and taxes of individuals, companies, government agencies and organizations. They see to it that the financial statements of these companies are correct and comply with accepted accounting practices and local, state and federal regulations. Internal auditors are tasked by a company to determine if the firm’s resources have been mismanaged in any way by any department or employee. They also look at processes that would help the organization enhance its methods of determining whether fraud or waste has been committed.
External auditors, on the other hand, review the financial statements of a client to determine if these are accurately prepared. They also report to investors and authorities whether the statements have been sufficiently prepared and are in accordance with law.
When an independent auditor performs his work, he usually tries to understand how the organization operates. For instance, he seeks to know how it handles financial reports and known cases of error or fraud by asking members of the management team or other employees. In his investigations, he evaluates and tries to gain an understanding of the company’s internal controls as well.
The auditor then conducts analytical procedures to determine the expected or unexpected discrepancies in the account balances and the company’s other transactions. They then look into the documentation that supports the company’s balances and transactions.
To give a more descriptive view of what an auditor does, let’s provide a hypothetical example: Let’s assume that the auditor saw that the company he is auditing recorded a sale of $10,000 in its financial statement. The first thing he does is check that the actual sale indeed occurred and that whatever product or service that was described in the sale was really delivered to a real customer. Then, the auditor must see to it that the sale of $10,000 is recorded as revenue with the entire amount reflected on the statement. The auditor should also look into how the proceeds of the transaction have been classified. If the $10,000 is revenue, it should be recorded as such and not as proceeds of a loan it got from the bank. Finally, the auditor should check if the transaction was recorded in the correct time frame.
While conducting the audits, the auditor will observe red flags closely. For instance, if only a portion of the amount is booked then that will be noted as a discrepancy in the company’s records. The records on paper should be in consonance with what actually happened.
After the audit is done, the auditor may then provide the company management with an objective opinion on the state of the company’s financial reporting. They may provide advice on the steps that the firm can take to improve its internal controls and thereby make its accounting processes more efficient and effective.