If you are interested in dissecting the inner workings of almost any aspect of a company, a career as an auditor may be for you. From poring over financial statements and expense reports to ensuring compliance with government regulations, auditing offers a wide variety of potential career opportunities. Read on to see if you have what it takes to succeed in this in-demand career. (To read more about how individuals deal with audits, read Avoiding An Audit and Surviving The IRS Audit.)
What Are an Auditor's Responsibilities?
Auditing is a complex career, involving many different job responsibilities:
- Auditing involves the review, analysis and evaluation of processes, products, services, systems, organizations and employees.
- Auditors assess the accuracy, validity, reliability, verifiability and timeliness of organizational information, as well as the sources and processes by which that information is produced. This is an important role, because management and external parties thereby obtain an accurate assessment of the organization under their stewardship.
- Auditors also inspect an organization's internal controls and the extent to which these controls manage an organization's risk exposures. Internal controls help prevent the theft of a company's assets and, if properly designed and executed, prevent data manipulation by employees.
- Auditors ensure that checks are in place to help with the effectiveness of financial and operational reporting. They also make sure that controls are in place to protect an organization's assets.
Constraints in resources (hiring internal or external auditors can be expensive) necessitate that an audit provide only reasonable assurance that statements are free from significant errors. Due to the high cost of audits and the fact that auditors cannot possibly verify every transaction that has taken place, auditors use statistical sampling and make a determination (with management) as to key focus areas. An audit is not a guarantee that financial statements provide a perfect snapshot representation of the organization, only a reasonable assurance that the statements are free of material misstatements. (To learn what to look for when analyzing your own financial statements, read Evaluating Your Personal Financial Statement.)
Useful Personality Characteristics
There are a few personal characteristics that are important for an auditor to have:
- Auditors should posses a strong ethical framework and report on issues (or anticipated issues) as they come across them. There is a temptation to "let things go" as further investigation may require more work or reveal embarrassing processes, performance and/or fraud.
- Good communication skills allow auditors to have a rapport with a variety of employees, managers, directors and external parties. As auditors establish good rapport with a variety of individuals, however, they should keep in mind the objectives of the audit (for instance, the reliability, verifiability, accuracy and timeliness of information), as they can often be tempted to not report on issues discovered.
- Strong interpersonal skills are important, due to the variety of informational requests - and often, resistance to those requests - required from a variety of sources. Strong and/or ambitious types may attempt to dissuade auditors from revealing embarrassing findings.
- Auditors need to be team players. As the scope of the audit can be fairly large, it is beneficial to help in other areas of an audit when resource constraints warrant it.
- Finally, "professional skepticism" is an important trait to have, especially when reviewing a company's internal controls. One needs to assess how perpetrators of fraud can beat a company's controls, and auditors need to design and implement a system that can effectively protect the organization's assets.
Internal and external auditors typically have a college or master's degree with business-related majors such as accounting, finance and economics. Larger accounting firms and internal audit departments will typically want their auditors to possess certifications such as Certified Public Accountant (CPA), Certified Internal Auditor (CIA), Certified Information Systems Auditor (CISA), Certified Government Auditing Professional (CGAP) or Certified Fraud Examiner (CFE), among others. Out of these, the CPA is regarded as the most credible, as auditors interface with employees, managers, executives, members of the board and external parties. (To read more about the CPA designation, see CPA, CFA Or CFP® - Pick Your Abbreviation Carefully and Accounting Not Just For Nerds Anymore.)
What Auditors Do for Companies
An audit may be executed on IT financial-reporting mechanisms, where auditors assess whether the numbers being processed and reported by the IT/accounting software are reliable, accurate and timely. If the accounting system has delays or errors in reporting product shipments or receipt of raw materials, for example, the income statement or balance sheet may be significantly distorted (if the transactions are large). Significant distortions mean that management may not be able to properly run the company, or investors may incorrectly value the organization.
In another case, auditors may ascertain a company's inventory-management system as well as its current inventory count. Obsolete inventory (which is essentially worthless) may still be on the books as regular finished-goods inventory, which overstates a company's assets on the balance sheet and provides a misleading picture for management and investors. Auditors will need to understand the root causes for the overstatement, and recommend periodic inventory accounts and/or security measures (depending on the cause) to management by way of an audit report. For instance, a supervisor may have to periodically sign off on inventory counts by junior personnel and apply a "common sense" test (i.e., Does this count seem accurate and reasonable?). (Read more about inventory accounting in Inventory Valuation For Investors: FIFO And LIFO.)
In another scenario, division managers may be making large refund payments to customers on a recurring basis (for a variety of reasons, such as volume discount programs, claims of damaged shipments, goodwill gesture, aggressive quarterly revenue management, etc.). In identifying risks of impropriety, auditors may recommend that the system automatically require a finance manager's approval for transfers over $50,000, for example, along with monthly reviews for transfers which exceed $100,000 per month for the division (the company may be a multinational corporation generating billions of dollars in revenues, and it may not be worth the managers' time to conduct transfer reviews of amounts falling below these thresholds).
Internal auditors are employees dedicated to assessing the company's internal controls. They can serve as full-time staff or temporary workers working to improve the efficiency and effectiveness of processes, find fraud and provide periodic assessment reports to management and the board of directors. Small organizations may not be able to afford having a year-round internal audit staff and may choose to outsource a portion (or all) of their auditing needs to external auditors. External auditors assess their clients' operational systems and financial statements based on agreed-upon project scope and engagement costs. (For further reading about internal auditors' responsibilities, read An Inside Look At Internal Auditors.)
Which Aspects of a Company Are Audited?
Virtually any part of an organization can be subjected to an audit. Managers, the board and/or external parties can help to determine the priority areas based on their organization's unique circumstances. A helpful way to determine what is a priority is to determine the effects and amount of recurrence due to failed processes. Managers should generally focus on first fixing areas where this impact is high.
As a sample of areas on which audits can be conducted, consider the following:
- financial reporting
- information technology
- supply chain
- inventory management
- transfer-of-payment processes
- administrative procurement
- expense accounts
- revenue management
- employee performance
- environmental impact
- hiring practices
- internal controls
- tax and government compliance
Because of the large quantities of information and processes within an organization and the limited human resources with which to inspect and assess these at any given time, auditors often address only specific key areas as part of the audit scope. Stated differently, material and important data are usually addressed, while less significant areas are placed on hold. Auditors often use statistical sampling to help identify focus areas, and also evaluate processes based on tests. For instance, controls on an IT system designed to prevent unauthorized access to petty cash balances on a bank account can be checked by testing the software system. (To learn more about the role of the auditing department within a company, read Evaluating The Board Of Directors.)
Stricter Regulations Create New Jobs
Publicly traded companies in the U.S. follow rules set forth by the Public Company Accounting Oversight Board (PCAOB), a body established by the Sarbanes-Oxley Act of 2002. This act is an especially relevant, thorough and costly set of regulations to which managers and decision makers of public companies must adhere. Specifically, Section 404 of the act requires that:
- management and external auditors report on the adequacy of internal controls over financial reporting
- management report on the effectiveness of the company's internal controls over financial reporting
The documentation and testing work conducted across an organization that are required by Section 404 take an immense amount of effort by employees, management and auditors. Sarbanes-Oxley is considered a controversial requirement because of the burdens placed on public organizations and its high cost in terms of dollars and time. However, when properly complied with, companies also enjoy better processes, controls, risk management and financial and operational assurance. (Read more about the advantages and drawbacks of being a public company in Why Public Companies Go Private.)
Stricter accounting and auditing regulations in the U.S. present robust growth prospects for the auditing field. According to the Bureau of Labor Statistics, accounting- and auditing-related employment is expected to grow by 18% between 2006 and 2016, a faster growth rate than average relative to all other occupations. This 18% increase represents more than 226,000 new job opportunities in accounting and auditing.
Auditing is a growing field, thanks to stricter government regulations, and offers a surprising variety of job responsibilities for those inclined to deal with the details of a company's operations. If liaising with company management and regulating a variety of business and financial processes appeal to you, consider an in-demand career as an auditor.
TermNon-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
ProfessionalsTrying to land a job in the coveted private equity sector? Ensure your resume meets the stringent PE job requirements with these important tips.
Credit & LoansA nonperforming loan is any borrowed sum where the borrower has failed to pay scheduled payments for at least 90 days.
EconomicsThe cost of revenue is the total costs a business incurs to manufacture and deliver a product or service.
EconomicsCash and cash equivalents are items that are either physical currency or liquid investments that can be immediately converted into cash.
EconomicsThe carrying cost of inventory is the cost a business pays for holding goods in stock.
Personal FinanceWhat does an equity research analyst do on an everyday basis?
InvestingBulge bracket banks offer higher salaries and prestige. But boutique banks are rapidly gaining market share and may offer better work/life balance and job security.
Personal FinanceEquity research is sometimes viewed as the unglamorous, lower-paid cousin to investment banking. In this article, we compare the two careers.
InvestingMany seek at the door of investment banking, but few can enter. Possessing these seven traits will help you land a job and succeed in investment banking.
Someone working at an institution raising capital for companies, ...
A company's total revenue (equivalent to total sales) minus the ...
An accounting measure used to quantify a firm's effectiveness ...
A set of international accounting standards stating how particular ...
A financial statement that summarizes a company's assets, liabilities ...
The value of an asset less the value of all liabilities on that ...
Contrary to conventional wisdom, the Federal Reserve is extensively audited. Politicians on the left and right of a populist ... Read Full Answer >>
In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
Small business owners should go through the bank reconciliation process at least monthly, and many business consultants recommend ... Read Full Answer >>
The difference between recurring and nonrecurring general and administrative expenses can best be understood as the difference ... Read Full Answer >>
In finance and accounting, financial statements represent the fundamental means of analyzing a company's financial position, ... Read Full Answer >>
A company's working capital turnover ratio is traditionally positively correlated with business performance. A high, or better ... Read Full Answer >>