KINDS AUDITORS What Is an Internal Auditor (IA)? An internal auditor (IA) is a trained professional employed by companies to provide independent and objective evaluations of financial and operational business activities, including corporate governance. They are tasked with ensuring that companies comply with laws and regulations, follow proper procedures, and function as efficiently as possible. KEY TAKEAWAYS • • • An internal auditor (IA) is a trained professional tasked with providing independent and objective evaluations of company financial and operational business activities. They are employed to ensure that companies follow proper procedures and function efficiently. Final reports are presented to senior management and can include recommendations. • Understanding an Internal Auditor (IA) The main job of an internal auditor (IA) is to identify problems and correct them before they are discovered during an external audit by an outside firm or regulatory agencies, such as the Securities and Exchange Commission (SEC). One of the roles of the SEC is to regulate how companies report their financial statements to help ensure that investors have access to all of the necessary information before investing. What is an External Auditor? An external auditor is a public accountant who conducts audits, reviews, and other work for his or her clients. An external auditor is independent of all clients, and so is in a good position to make an impartial evaluation of the financial statements and systems of internal controls of those clients. The resulting audit opinions are highly valued by members of the investment community and creditors, who need an independent appraisal of the financial statements of organizations. WINNIE VILLANUEVA 1 KINDS AUDITORS External auditors are certified by a governing body. As certified public accountants, external auditors have proven that they have a certain minimum level of training and experience, and have passed a lengthy examination. These auditors must also fulfill periodic continuing professional education requirements in order to keep their certifications current. The Difference Between an External Auditor and Internal Auditor Internal auditors are employees of a company, and so are not independent from it, as is the case with an external auditor. Further, internal auditors are more concerned with investigating whether processes are functioning properly, while external auditors are more concerned with whether an entity’s financial statements are fairly stated. In addition, internal auditors are more likely to obtain the Certified Internal Auditor designation, while external auditors obtain the Certified Public Accountant designation. Forensic Auditors Accounting students who wish to become forensic auditors can choose from the limited number of programs offering that major, or take a conventional accounting degree and then earn certification in forensic accounting techniques. Forensic accountants must combine a diverse set of skills. They must have a strong grounding in accounting principles as well as the regulatory environment for business accounting in their area. However, forensic auditors are also investigators, and must be able to elicit useful information by questioning suspected wrong Why is a forensic audit conducted? Forensic audit investigations are made for several reasons, including the following: WINNIE VILLANUEVA 2 KINDS AUDITORS Corruption In a forensic audit, while investigating fraud, an auditor would look out for: 1. Conflicts of interest – When a fraudster uses his/her influence for personal gains detrimental to the company. For example, if a manager allows and approves inaccurate expenses of an employee with whom he has personal relations. Even though the manager did not directly financially benefit from this approval, he is deemed likely to receive personal benefits after making such inappropriate approvals. 2. Bribery – As the name suggests, offering money to get things done or influence a situation in one’s favor is bribery. For example, Telemith bribed an employee of Technosmith company to provide certain data to aid Telesmith in preparing a tender offer to Technosmith. 3. Extortion – If Technosmith demands money in order to award a contract to Telemith, then that would amount to extortion. Asset misappropriation Asset misappropriation is the most common and prevalent form of fraud. Misappropriation of cash, creating fake invoices, payments made to nonexisting suppliers or employees, misuse of assets, or theft of Inventory are a few examples of such asset misappropriation. Financial statement fraud Companies get into this type of fraud to try to show the company’s financial performance as better than what it actually is. The goal of presenting fraudulent numbers may be to improve liquidity, ensure top management continue receiving bonuses, or to deal with pressure for market performance. Some examples of the form that financial statement fraud takes are the intentional forgery of accounting records, omitting transactions – either revenue or expenses, non-disclosure of relevant details from the financial statements, or not applying the requisite financial reporting standards. WINNIE VILLANUEVA 3 KINDS AUDITORS Government Auditors Government auditors maintain and examine records of government agencies and of private businesses or individuals performing activities subject to government regulations or taxation. ... They detect embezzlement and fraud, analyze agency accounting controls, and evaluate risk management Government Auditors are those who audit the financial position of Government agencies and private businesses involved in activities pertaining to government regulations, taxation, foreign exchange, etc. Most of the Government Auditors are associated with audit firms which cater only to the public sector. The main role of the Government Auditors is to ensure that the finances are spent and earned according to the stipulated laws and rules. They conduct a high-quality audit that holds their clients accountable for the use of public resources in compliance with laws and regulations WINNIE VILLANUEVA 4
