What an Auditor does and doesn’t do
What
an Auditor does and doesn’t do
In the previous, companies often relied on accountants
from their audit firms to assist in reconciling accounts, preparing the
adjusting journal entries and writing financial statements. Small companies, in
particular, often lacked the level of accounting sophistication necessary to
carry out these tasks. Relying on the audit firm often made sense from the
perspective of efficiency and cost containment. But an increased focus on
auditor independence has come about during the last decade in new requirements
by the American Institute of CPAs and a host of related regulatory guidance
issued by the Securities and Exchange Commission, the General Accounting Office
and the U.S. Department of Labor. The standards generally restrict the
nonattest services – such as tax or consulting services – that auditors may
perform and the circumstances under which those services may be allowed. The
increased regulations serve to muddy an already often misunderstood set of
expectations.
What
auditor do
The outside, independent auditor is engaged to
render an opinion on whether a company’s financial statements are presented
fairly, in all material respects, in accordance with financial reporting
framework. To form the opinion, the auditor gathers appropriate and sufficient
evidence and observes, tests, compares and confirms until gaining reasonable
assurance. The auditor then forms an opinion of whether the financial
statements are free of material misstatement, whether due to fraud or error.
Some of the more important auditing procedures
include:
▶Inquiring
of management and others to gain an understanding of the organization itself,
its operations, financial reporting and known fraud or error
▶ Evaluating
and understanding the internal control system
▶Performing
analytical procedures on expected or unexpected variances in account balances
or classes of transactions
▶ Testing
documentation supporting account balances or classes of transactions
▶ Observing
the physical inventory count
▶ Confirming
accounts receivable and other accounts with a third party
At the completion of the audit, the auditor may also
offer objective advice for improving financial reporting and internal controls
to maximize a company’s performance and efficiency.
What
doesn’t auditors do
For a clear picture of the role of external
auditors, it helps to understand what you should not expect auditors to do. The
emphasis is on “independent.” First and foremost, auditors do not take
responsibility for the financial statements on which they form an opinion. The
responsibility for financial statement presentation lies squarely in the hands
of the company being audited. In practical terms, there are a number of tasks
you should not expect your auditor to perform.\
In practical terms, there are a number of tasks you
should not expect your auditor to perform.
▶Analyse
or reconcile accounts
▶“Close
the books”
▶Locate
invoices, etc., for testing
▶Prepare
confirmations for mailing
▶Select
accounting policies or procedures
▶Prepare
financial statements or footnote disclosures
▶Prepare
an entity for audit
▶
Determine restrictions of assets
▶Implement
corrective action plans
▶
Determine estimates included in financial statements
▶Establish
value of assets and liabilities
▶
Maintain client permanent records, including loan documents, leases, contracts
and other legal documents
▶Prepare
or maintain minutes of board of directors meetings
▶Establish
account coding or classifications
▶
Determine retirement plan contributions