What is an Auditor?

What Does an Internal Auditor Do?

Most businesses engage external auditors to review the work done by their employees and check for errors, oversights or irregularities. An internal auditor is a person employed by a business to do the same thing. The difference is that while the external auditor has many clients and does this work for a fee, the internal auditor is an employee and works within the business alongside other employees. This is an important role, as it is often the internal auditor who first identifies poor work quality, waste of time and materials,fraud, theft and deliberate acts of industrial sabotage.

The standard method for conducting an audit is to examine a transaction or process, compare how it was done with the way it is documented in an operating procedure or accounting convention and report to management on any differences. The internal auditor uses a range of methods to capture information, and often will have to design one-off analysis tools, or at the very least adapt an existing tool, to keep track of the information being reviewed. Spreadsheets, tables, graphs and run sheets are just some of the tools used to record information on which the final report is built.

This information is vital to management’s ability to run a successful business and continue to provide employment and value to the community. The internal auditor is responsible for reporting in a factual, objective manner, free from emotion or conjecture. It is up to management to decide the action needed, although recommendations can be made in the audit report.

Most employees do not set out to make deliberate mistakes, and often, issues identified in the audit are minor and easy to rectify. In cases where processes are more complex, errors can occur when there is a high turnover of staff and lack of attention to training new people. An internal auditor can identify that by looking at the data and talking to the employees.

The person in this role walks a fine line between management and the other employees. On the one hand, the internal auditor is an employee, and is therefore expected to serve the organization. On the other hand, the auditor is also an employee, and needs to be able to form sound working relationships with other employees. A good internal auditor needs an inquiring mind, the ability to interact with different types of people, a thorough understanding of work processes and how they are documented and the skills to prepare and present management reports.

What Does an External Auditor Do?

An external auditor performs independent, third-party reviews all the financial records of a company or corporation. He evaluates all accounting,payroll and purchasing records, as well as any documents related to investments, stocks or loans. His job is to provide an accurate, unbiased analysis of the company’s financial condition.

The objectivity of an external auditor is imperative for him to be successful. No connection to the company is permitted, as it may be construed as biasing the auditor’s report. This detachment generally means he cannot be a friend or relative of any owner,manager or employee. He must not hold stock in the company or have any monetary stake in any of their subsidiaries or holdings.

To be fair and equitable, an external auditor should familiarize himself with the nature of the business he is auditing prior to starting the job. For example, service industries and consumer goods companies have markedly different expenses as well as disparate methods of calculating profits and losses. Being aware of these differences is important for his conclusions to be accurate and constructive.

Businesses often depend on an external auditor to be their financial judge and jury. His findings strongly influence the company’s reputation in both the private and public sectors. If his conclusions about assets, debts and tax responsibilities and payment do not match those on the company records, the repercussions can be serious.

If an external auditor finds irregularities, he documents them and makes notes on suggested improvements. These may relate to accounting methods, internal controls or spending habits. Other areas of concern commonly relate to how employees are classified and paid. For example, companies sometimes incorrectly categorize jobs as exempt, not requiring overtime pay, when they are actually non-exempt positions. He may also make suggestions on reducing overhead through staff reductions or betterinventory control.

In some instances, an external auditor’s services are required by a regulatory agency or shareholders that have doubts about the accuracy of a company’s financial claims. If he finds evidence to support their suspicions, he is typically bound to report them. The company is generally given the opportunity to defend their position either in writing or in oral presentations.

Once the auditor’s job is completed, he presents his findings to management. The areas his report normally covers include the state of accounts payable and receivable as well as his opinion of the record-keeping systems and the company’s financial strength. His comments on these topics are generally expected to be constructive and include recommendations for improvements.

Most external auditor positions require the applicant to be a certified public accountant. Other jobs may require a bachelor’s degree in accounting or finance. Experience in auditing, financial analysis or business administration is also valuable.

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OUTSTANDING BALU SIR,THANX 4 SHARING.

Nice Article,thanks for Sharing
 

Thanx a lot 4 sharing sir. Nice presentation and useful information.

Thanx for the info.

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OUTSTANDING BALU SIR

Great useful and knowledable information.....

nice sharing........

Thanks Balu