Auditor: Definition & Overview
As a small business owner, you will often be reminded to keep your bookkeeping and paperwork in order in case you are audited. During this process an auditor is sent to look over the company’s financial statements and supporting records.
What exactly is an auditor? Read on as we give you a detailed definition and answer some common questions.
Table of Contents
- An auditor’s job is to determine whether a business’s financial statements follow the generally accepted accounting principles or GAAP.
- There are a number of different types of auditors including internal, external, government, and forensic.
- All public companies are required to engage external auditors to review their financial statements.
- A judgment of an audit or audit opinion is either qualified or unqualified.
What Is an Auditor?
An auditor is a person that reviews financial information and verifies that the company has adhered to a particular standard in which the entity has prepared the information. They are responsible for reviewing and verifying authenticity and accuracy. Financial statement standards could be GAAP (Generally Accepted Accounting Principles), tax law, or internal policies that the company has set.
People often think of being audited as a negative. On the contrary, auditors help to protect businesses from a number of risks, including financial fraud. They also help to identify any shortcomings in a company’s accounting methods or internal controls.
On occasion, auditors may work as consultants, helping to identify ways to boost operational efficiency and strengthen financial processes to ensure accurate and reliable financial statements. An auditor may work in various capacities within a number of different industries.
What Are the 4 Types of Auditors?
There are four different types of auditors:
1. Internal Auditors
An internal auditor is hired by an organization to provide an in-house evaluation of business operations.
2. External Auditors
External auditors may work with government agencies or ensure financial information meets the criteria set by a financial accounting regulatory body. Their job is to provide an opinion on an organization’s financial statements.
3. Government Auditors
Government auditors will primarily act as external auditors to various government entities to ensure that they are adhering to financial policies and financial statement standards enforced by regulatory bodies. Other government auditors will work in the area of tax compliance to ensure individuals and businesses are following legislated tax law.
4. Forensic Auditors
A forensic auditor specializes in identifying if a financial crime or fraud has taken place. They are often used by law enforcement agencies. Sometimes forensic auditors are hired by companies to identify if fraud has taken place. Financial audits performed by external auditors are not designed to specifically detect fraud, but it can be a result. So an organization may engage a forensic auditor to establish proof that there have been instances of fraud.
Auditors are important financial regulators. They may be thought of as a negative entity but this is far from the truth. They can greatly help businesses who are struggling with their bookkeeping, as well as help protect them from financial fraud.
FAQs on Auditors
Auditors do get audited. This is done to make sure that there are the highest levels of accountability and transparency. It is done via external independent auditors who don’t work alongside the auditor in question.
An accountant is a professional that prepares an organization’s financial statements and oversees the preparation of the company books and records ensuring that the organization is in accordance with their own financial policies and procedures while also adhering to GAAP.
An auditor reviews and tests financial records to ensure that the company is following its own policies and procedures and also adhering to GAAP. An auditor provides an opinion to the public that the financial statements are presented fairly in accordance with GAAP.
Most auditors will have an accredited bachelor’s degree, and in many cases have an accounting designation, such as CPA. The accredited bachelors degree is typically in a related field and majors in accounting. In total, this takes about 3-4 years of full-time studies.
There are many benefits of being an auditor including:
- Building relationships with clients and offering valuable insights into businesses
- Exposure and experience in working with a wide variety of organizations
- You can support businesses.
- Providing insight into financial statements, the effectiveness of financial practices, and the validity of financial information depended on by various stakeholders.
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