Accounting is the systematic recording, analysis and reporting of financial transactions of a business. An individual skilled in the practice of accountancy is called an accountant.
There are different types of accountants. They include auditors, forensic accountants, public accountants, tax professionals, financial advisors and consultants.
Auditing is an intensive study of financial records and reports of an enterprise by accounting specialists. Accountants responsible for preparation of the records and reports are not supposed to take part in the auditing process. In large firms public auditing by independent auditors is common.
Auditors help to ensure firms efficiency by keeping financial records accurate and confirm proper and on time tax payment. Auditors analyze and communicate financial information for various entities such as companies, individual clients, and federal, state, and local governments.
An auditor’s work involves verifying accuracy of information than creating account related information. However, in order to do this, auditors must understand the methods by which financial information is recorded and presented. They must completely understand accounting methods that have been used for accounting. If not, auditors will not be able to verify accuracy of the accounts recorded.
Auditors conduct tests to determine whether the enterprise’s statements are according to valid accounting principles. An enterprise should be fair in presenting its financial position and operating results. Regarding personal tax audits, auditors analyze statements filed by individuals. This is to determine whether people have accurately reported their financial circumstances when filing their taxes.
If an auditor finds errors in the accounts it may be recorded as a failure in audit. Such failures result in fines. In matters of extensive and deliberate deception, criminal prosecution may result.
Auditors employed by federal, state, and local governments ensure that revenues are received and expenditures are made in accordance with laws and regulations.
Internal auditors verify the effectiveness of their organization’s internal affairs. They also check for mismanagement, wastage of resources or fraud inside the organization. Internal auditor’s examine and evaluate their firms’ financial and information systems, and management procedures. This is to ensure that the records are accurate and controls imposed by management are adequate. Internal auditors review company’s efficiency and compliance with corporate policies and government regulations. The organization’s computer systems are reviewed for errors by the auditors, to ensure their reliability and integrity of data. There are special titles given to different type of internal auditors. They are information technology auditors, environmental auditors, and compliance auditors.
An external auditor is audit professional who audits the financial statements of a company, government, individual, or any other legal entity or organization. An external auditor will be independent of the entity being audited. Investors, government agencies, and the general public, rely on the external auditor to present an unbiased and independent evaluation on such entities.
An important role of an external auditor is to express an opinion on whether an entity’s financial statements are free of misstatements. Auditors are not fraud detectors in accounts. Their function is to make sure that the company’s financial statements are true and there is fair representation of the company’s actual position. However, if they come across any fraudulent information they are responsible to bring it to the management’s attention. If the management of the organization does not take appropriate actions the auditors can withdraw from the assignment.
Normally, when assessing the overall management of an organization external auditors can review the entity’s information technology control procedures. In some organizations, government authorities might have raised questions regarding financial management of the organization. External auditors are also supposed to investigate such material issues raised by the authorities. Certified public accountants are the only authorized non-governmental type of external auditors in the U.S. They may perform audits and attestations on an entity’s financial statements and provide reports on such audits for public review.
If any other relationship exists between an auditor and a legal entity apart from the relationship for auditing the financial records of the entity, it must be disclosed in the auditor’s reports. Such rules prohibit auditors from owning a stake in public client’s organizations. This also limits the types of non-audit services they can provide.