An auditor is a person who prepares and examines financial records. Most auditors are certified public accountants (CPAs). Auditors work in a wide variety of industries and may be employed by corporations, government agencies or public accounting firms to perform different types of audit reports.
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The four types of auditors are external, internal, forensic and government. All are professionals who use specialized knowledge to prepare specific types of audit reports.
An external auditor is a third-party consultant who independently reviews a company's financial records, including purchasing records, payroll, accounts payable and receivable, expense reports, inventory and tax payments. External auditors look for financial misstatements resulting from errors, fraud or embezzlement.
Because they are hired by a company and not employed by it, they have no stake in the outcome of the audit and can, therefore, examine records without bias. The Securities and Exchange Commission (SEC) requires that all companies that trade publicly must be reviewed regularly by external auditors.
Internal auditors perform the same functions as external auditors except that they are employees of the company they are auditing. Internal auditors are important to a company's decision-making process, as they look at aspects of the business such as risk management, corporate governance, organizational objectives, operational efficiency and compliance. Internal auditors identify and help rectify problems before an external audit.
Forensic auditors perform audits with the understanding that their findings will be used in a court of law for a trial or some form of mediation. Forensic audits are used to investigate fraud, embezzlement or other financial crimes. A forensic auditor may be called upon to testify during trial proceedings.
Forensic audits are usually conducted by Certified Fraud Examiners (CFEs) or accountants who specialize in the field of forensic accounting. Forensic auditors may also be involved in audits that do not involve financial fraud, including divorces, business closures and bankruptcy filings.
Government auditors perform audits of government agencies and of private businesses and individuals engaged in activities that are subject to government regulations. Government auditors perform financial audits as well as compliance audits.
Types of Audit Reports
There are four types of audit reports:
- Unqualified Opinion-Clean Report: Auditors most often give this type of report. It contains no adverse comments or disclaimers about the audit process. A clean report indicates that the auditor is satisfied with the findings.
- Qualified Opinion-Qualified Report: Auditors use this type of report when they lack confidence in a specific process or transaction uncovered in their findings. In the report, they state the reasons that they cannot present an unqualified opinion.
- Disclaimer of Opinion-Disclaimer Report: Auditors make disclaimer reports when they feel that a company limited their ability to conduct the audit or did not answer questions satisfactorily. In such cases, auditors distance themselves from providing any opinions on financial statements.
- Adverse Opinion-Adverse Audit: When auditors are dissatisfied with their findings, they issue this type of report. Adverse opinions raise a red flag that there is potential for fraud.
Qualities of an Auditor
In addition to formal education and professional certifications, the qualities an auditor needs for success include:
- Ability to make independent decisions: Auditors cannot allow themselves to be influenced by anyone, even when dealing with highly sensitive information.
- Strong attention to detail: Thoroughness and accuracy are essential.
- Understanding of different business needs: Auditors must be able to understand the structure of a business and what it entails.
- Dependability and trustworthiness: Auditors must stay on schedule, attend meetings on time and offer timely feedback on the progress of their work. They must be discreet with the information to which they have access and share their findings only with those who have a need to know.
- Effective communications skills: Auditors must be able to present their findings to concerned parties and have the skills to explain and elaborate if required.