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Auditor

An individual or a firm assigned to perform an audit on an organization

What is an Auditor?

An auditor is a person or a firm assigned to perform an audit on an organization. An audit is a structured, methodical process that includes an examination of books, accounts, records, or various documents.

The audit can be on any topic. However, from a financial perspective, an auditor will examine the financial statements of an organization. The auditor performs the examination in order to confirm that all reports are accurate and documents are free from misstatement. Misstatements can take place when the financial statements are incorrect due to fraud or error.

 

Auditor

 

Typically, to carry out such a type of financial audit, the auditor will need to possess certain qualifications, such as a certification by the regulatory authority of accounting and auditing. It will allow the auditor to be able to state whether the organization is meeting accounting standards. Once certified, the auditors become generally known as Certified Public Accountants (CPAs).

It is imperative that the auditor provides a true and fair view of the organization’s financial statements and follows audit standards. Interestingly, the requirements for financial statements are becoming more and more elaborate. Currently, the four required financial statements include the balance sheet, the income statement, the statement of cash flows, and the notes regarding the three financial statements themselves. It helps the auditor to successfully complete their auditing task.

 

Types of Auditors

It is important to note that auditors can be an internal or an external hire.

 

1. Internal auditors

Internal auditors work in the company as an employee, and as part of their role, they must audit certain procedures within the company, such as its recordkeeping.

 

2. External auditors

External auditors, on the other hand, are defined as public accountants who perform an audit on an organization from an independent standpoint. They are employed by an accounting firm, not by the organization.

They will look at areas of the organization, such as risk management or financial processes and statements, in order to determine whether they are functioning and recording appropriately. After audit completion, external auditors can provide their objective audit to, for example, shareholders or stakeholders.

 

What are the Auditor’s Results?

The auditor’s results from their analysis are known as the auditor’s opinion. It is known as the auditor’s clean opinion when it includes only three paragraphs in total – two paragraphs discussing scope and one paragraph discussing opinion. The opinion paragraph touches on the importance of presenting fairly and conforming with Generally Accepted Accounting Principles (GAAP). The term fairly, more specifically, refers to the term accurately. It can be stated as a qualified opinion if the auditor’s report includes discussions of consistency, uncertainty, or going-concern doubt.

There are some rare cases where the auditors’ opinion is labeled as a disclaimer when they feel they are unable to express an opinion due to limitations on the scope. Finally, the opinion is labeled as an adverse opinion if they feel the financial statements were not presenting the situation fairly. These are both serious situations and can result in suspensions.

 

Why are Auditors Important?

Auditors are important because they are able to provide assurance of an organization’s financial statements from an objective and independent opinion. It benefits the company in several ways, such as maintaining consistency, finding errors in their processing, or detecting fraud. Additionally, it objectively advises anyone involved in the company, such as the board of directors, shareholders, or stakeholders, because it is an unbiased report.

If the auditor is able to report adequate financial statements for a certain company, it can also help reduce investor risk while providing validity. It, in turn, increases investor confidence. Overall, an auditor’s certified opinion can provide an overview of the financial statements of a company and can display good management if determined to be successful in their audit.

 

Practical Example

An auditor is in charge of auditing the financial statements of Company ABC at the end of the year. After carefully auditing in accordance with the generally accepted auditing standards, they are able to ensure the company’s statements are free of material misstatement. Based on the audit, the auditor concludes that the company presented its financial statements fairly, and they can thus confirm that it is conforming with GAAP.

 

Additional Resources

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Audited Financial Statements
  • Going Concern
  • IFRS vs. US GAAP
  • Internal vs External Financial Reporting

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