Director/VP, External Reporting – Accounting Career Network – New York, NY

such as bond offerings, securitizations, etc.)
Manage staff consisting of at least 1 managers and 1 senior analyst
Participate in Sarbanes-Oxley processes

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Auditor’s Report: Opinion, Disclaimer, Internal audit, External auditor, Audit, Evaluation, Legal person, Financial audit, Sarbanes? Oxley Act, International … on Auditing, Single Audit, XBRL assurance

Product Description
The Auditor’s report is a formal opinion, or disclaimer thereof, issued by either an internal auditor or an independent external auditor as a result of an internal or external audit or evaluation performed on a legal entity or subdivision thereof (called an ?auditee?). The report is subsequently provided to a ?user? (such as an individual, a group of persons, a company, a government, or even the general public, among others) as an assurance service in order for the user to make decisions based on the results of the audit. An auditor?s report is considered an essential tool when reporting financial information to users, particularly in business. Since many third-party users prefer, or even require financial information to be certified by an independent external auditor, many auditees rely on auditor reports to certify their information in order to attract investors, obtain loans, and improve public appearance. Some have even stated that financial information without an auditor?s report is ?essentially worthless? for investing purposes.

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Internal V External Auditing; Which do you prefer?

ABSTRACT

Internal and external auditing of accounting are among one of the “best jobs” listed in the newspaper. They are similar, however, they do differ in some roles and responsibilities. To discover these similarities and differences, 5 articles were read and then discussed within the body of the manuscript. As a result of this explanation, I personally have put a lot of thought into which type of auditor I would like to become. Before this I had no idea, did you?

 What is an internal auditor?

“Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.”

An internal auditor seeks to advise management on whether its major operations have sound systems of risk management and internal controls. In other words, the internal audit function is one to ensure that the internal controls are adequate enough to maintain compliance with the policies, procedures and guidelines while being ethical. In this case, “being ethical” involves four main responsibilities of the internal auditor with the first being integrity. Internal auditors must be honest in their job as well as diligent in their work while following the law. Integrity establishes trust which provides them with the basis for reliance on their judgment. Some say that internal auditors should have integrity to make sure they are not acting in any way to discredit internal auditing as a profession.

 The second ethical responsibility that internal auditors as well as external auditors should comply with is objectivity or independence. What is meant by this is that it is important to steer clear of any activity or relationship which could obstruct one’s ability to carry out an audit with an unbiased opinion. Accepting large gifts or payments could potentially impair one’s ability to do their job professionally. Gifts and other items of the same nature should be refused for the good of the audit.

Confidentiality being the third ethical responsibility for internal auditors means that extremely important information found during the audit should not be disclosed. Internal auditors need to respect the value and ownership of information they receive and do not disclose any of it without appropriate authority unless a legal issue or a professional obligation come up forcing them to do so. Some of the information acquired during an audit can be very valuable to people outside of the company which is why confidentiality is so important.

 Finally, the fourth ethical responsibility which auditors have is competency. In this case, competency means that an auditor should only take on responsibilities in which they can apply enough knowledge, skills and experience needed to carry out the audit professionally. Internal auditors need to improve their skills over time which will help them to become more proficient in their job.

 Having a strong ethical background is very important in the profession of being an internal auditor. These four guidelines are key in having a safe, legal and successful audit.

 Some of the more important roles and responsibilities of internal auditors are:

·         Developing the annual audit plan

·         Facilitating compliance with Sarbanes Oxley 404 requirements

·         Conducting field and management interviews

·         Prepare the audit program according to GAAP

·         Preparing working papers to summarize audit findings and recommendations

·         Periodically evaluate effectiveness of internal control practices

·         Coordinate audit activities with external auditors

·         Implement an audit quality assurance system

 

What is an external auditor?

An external auditor seeks to test the underlying transactions that form the basis of the financial statements. In other words, an external auditor reviews the control procedures and many other operations as their overall evaluation of internal controls. It is expected that the auditor would identify significant weaknesses that exist and make sure that anything material in nature be reported to management and possibly to higher authority, depending on the company. They provide an opinion on the adequacy of the company’s financial statements. They review the general controls as well as the overall financial statement preparation and reporting.

External auditor’s primary purpose is to give a company feedback on the effectiveness of the internal control system by giving an opinion with four main paragraphs. First, the introductory paragraph is written to indicate that an audit has been conducted and then identifies the financial statements that the auditors examined during the audit. The second paragraph is the scope paragraph which describes the character of the work in the audit and stating that they abided by Generally Accepted Auditing Standards (GAAS). This paragraph explains that the auditors were trained and proficient, independent, exercised due professional care, planned and supervised the work, obtained a sufficient understanding of the business and its internal control system and gathered sufficient evidence. These are the general standards and standards of field work which make up GAAS.

The third paragraph is the most interesting and generally the most important paragraph. This is the opinion paragraph where all of the final audited information is explained. It is typically one long sentence explaining if the financial statements present fairly, in all material respects, the financial position of a company and the results of their operations and their cash flows for this year and preceding years. They must state that all of this is in conformity with GAAS in the USA.

The last and final paragraph of an auditor’s opinion is the internal control paragraph. This is where auditors evaluate and report on the operating effectiveness of the entity’s internal control over financial reporting. They then state that based on the criteria established in the internal control framework, they express some kind of an opinion. There are four distinct types of opinions an auditor can issue which are unqualified, qualified, adverse or a disclaimer of opinion. An unqualified opinion is the best kind of opinion a company can receive and is the last line of the opinion before the auditor’s signature.

Some of the more important roles and responsibilities of external auditors are:

·         Advise management on areas at risk once the audit is complete

·         Recommend ways to improve operations and strengthen controls

·         Protect investors from receiving incomplete, inaccurate or misleading financial information

·         Add value to the effectiveness of corporate governance

What are the main differences between internal and external auditors?

Besides the differences that were previously stated, a significant difference between internal and external auditors is that an external auditor is and external contract and not an employee of the organization being audited. Internal auditors, however, are typically employed at the organization but there are an increasing number of internal auditors from an external source.

Another main difference between the two is that external auditors look to provide an opinion on whether or not the accounts are presented fairly and show legitimate assets, debts, etc. An internal audit forms an opinion on the adequacy and effectiveness of systems of risk management and internal control. Internal auditors are mainly concerned with overall risk management and external auditors are concerned with the “final” accounts and how data is presented in those accounts.

One other difference between internal and external auditors is that unlike external auditors, internal auditors should have full and free access to the company’s audit committee, unrestricted access to the company’s records, documents, property and personnel and authority to discuss initiatives, policies and procedures regarding risk assessment, internal controls, compliance, financial reporting and governance. External auditors can have the same privileges of access as internal auditors except that external auditors need to have proper authority to do so.

What are the main similarities between internal and external auditors?

There are many similarities between internal and external auditors. Some of the main similarities are that both internal and external auditors carry out testing routines which may involve examining many transactions. Some of these testing routines are testing the internal controls of the company and a test of reasonableness for bad debts. Another similarity between the two is that they both will be worried if procedures were very poor and there was a basic ignorance of the importance of following them. A company creates controls for a reason and they should not be ignored.

Both internal and external auditors are based in a professional discipline and operate to professional standards, seek active co-operation between the two functions and are tied up during an audit with a company’s internal control system. The most important thing that internal and external auditors both do is produce formal audit reports on their activities and are both concerned with the occurrence and effect that errors have on misstating the final accounts.

What are some career opportunities for internal and external auditors?

Internal and external auditors have similar career opportunities meaning that they both “audit” companies. An internal auditor is an employee of a company and makes sure that the internal controls are running properly, however, they cannot issue an external audit report. An internal auditor’s position could potentially turn into a CFO, CEO or controller type of position.

An external auditor on the other hand works for an outside firm and audits many companies in one year. Their career opportunities could extend far beyond just working for an accounting firm. They could end up getting an offer from a client to become a full time CFO for one particular company or become their personal internal auditor.

There are many paths that can be taken with the auditing profession. It really depends what a person chooses to do once they graduate from school. The roles and responsibilities of internal and external auditors are similar in some aspects but also very different. It is clear that they are two distinct professions and each has their own unique characteristics.

External and Internal Auditing: What’s the Difference?

Abstract

            The auditing profession is something that can involve many different kinds of activities.  These activities include protecting investors, organizations, and the economy as a whole.  There are very real dangers involved this ever evolving profession.  Fraud is most likely the most obvious and most dangerous activity that auditors must detect.  The second most dangerous is not doing their job well.  External auditors open themselves up to legal liability when they engage in audits, and not performing their job efficiently can be devastating.  This article will discuss these dangers, along with the roles and responsibilities of external and internal auditor, including the many career opportunities that come with these professions.

 

External and Internal Auditing: What’s the Difference?

          In order to compare and contrast the roles and responsibilities of external and internal auditors, as well as discuss the vast amount of career opportunities that comes with becoming an external or internal auditor, we must first define what they mean.  The Institute of Internal Auditors (IIA) describes an internal auditor as “one who performs an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. An internal auditor helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.”  In contrast, an external auditor is defined as performing a periodic or specific purpose audit to determine, among other things, whether the accounting records provided are accurate and complete, prepared in accordance with the provisions of GAAP, and examine financial statements prepared from the accounts present fairly an organization’s financial position, and the results of its financial operations.  Now that we know the difference between what an external auditor does versus an internal auditor, we may begin to describe the roles and responsibilities each has in the accounting field.

            External auditors have a great influence on the audit of internal controls through their audit activities, including conferring with management and their recommendations for improvement to internal controls.  They provide important feedback on the efficiency of the internal control system.  Specifically, external auditors examine on a test basis, transactions and records that support accompanying financial statements and the associated disclosures.  They review the accounting principles applied and considerable estimates made by management, and evaluate the overall presentation of an organization’s financial statements.  Before an external auditor can conduct his responsibilities, however, they must comply with the generally accepted auditing standards.  The most important being the independence the auditor must have in relation to the organizations he/she is auditing, and attaining the adequate training and proficiency to perform an audit.

            Internal auditors, on the other hand, evaluate and provide reasonable assurance of risk management and decide if internal control systems are implemented as intended to allow the organization’s goals to be met.  They report on deficiencies in the internal controls, issues involving risk management, and provide recommendations on how to improve in these areas.  Security is also an area of expertise an internal auditor may have when employed by an organization.  An internal auditor examines the security involving sensitive information that must be kept inside the organization.  Other responsibilities include communicating with management and external auditors, constantly continuing their education, and provide support to an organization’s anti-fraud controls.

            So far, the major differences between internal and external auditors are the amount of experience and expertise each holds.  Internal auditors seem to obtain knowledge specifically about the organizations to which they are employed.  This knowledge and experience may be carried with them from job to job, however, different organizations employ different accounting methods that could be tremendously different than that of the one they previously worked for.  External auditors have specific guidelines and laws to abide by, which requires them to obtain vast amounts of knowledge of many different types of accounting methods, controls, and more importantly, uncommon entities and environments.

            Upon discussing the roles and responsibilities of external and internal auditors, we can bring to light the many career opportunities that are available to both professions.  First, external auditors have an immeasurable advantage over internal auditors when it comes to employment prospects.  As stated earlier, external auditors seem to have the knowledge and expertise that can enable them to move from different accounting fields more easily than of an internal auditor.  External auditors can become private CPA’s with less difficulty, work as an internal auditor for a diverse amount of organizations, and progress in a firm more rapidly.  These assumptions may not hold true to all external auditors, however, the roles and responsibilities involved in each profession seem to set a higher standard for external auditors.

            According to www.bls.gov, “employment of accountants and auditors is expected to grow by 18 percent between 2006 and 2016, which is faster than the average for all occupations.  This occupation will have a very large number of new jobs arise, almost 226,000 over the projections decade.  An increase in the number of businesses, changing financial laws, and corporate governance regulations, and increased accountability for protecting an organization’s stakeholders will drive growth.”  After taking a glimpse at today’s economy, the previous statement may not hold much truth, but it is undoubtedly accurate in that the accounting profession will continue to grow, specifically auditing. 

         The next statement, made by the same website, must be presented when discussing career opportunities of auditors.  “An increased need for accountants and auditors also will arise from changes in legislation related to taxes, financial reporting standards, business investments, mergers, and other financial events.  As a result of accounting scandals at several large corporations, Congress passed the Sarbanes-Oxley Act of 2002 in an effort to curb corporate accounting fraud.  This legislation requires public companies to maintain well-functioning internal controls to ensure the accuracy and reliability of their financial reporting.  It also holds the company’s chief executive personally responsible for falsely reporting financial information.”

          The growth of the accounting industry as a whole is something that cannot be overlooked.  When considering the amount of fraud that has occurred over the years, it is impossible not to project an enormous need for more auditors over the next decade.  For example, the Bernie Madoff Ponzi scheme will require hours upon hours, days upon days, and months upon months to unravel the damage he and his “investment firm” has done.  There will be a countless number of external auditors working with the internal auditors from his failed investment firm to find out what exactly happened, and to try and recover monies for the duped investors.  As another example is the Texas-based Stanford Investment Firm that is now being investigated for also engaging in a Ponzi scheme.  This type of fraud is the most perilous to investors due to its nature.

         Fraud and changes in law due to fraud are the main reasons of the enormous growth in the accounting industry, specifically auditing.  It is the personal responsibility of internal and external auditors alike to actively investigate for fraud in their organization or their client’s organization.  To not be proactive in detecting fraud is to only do half of their job.  Auditors are required to analyze and interpret financial statements, internal controls, and so much more, hence detecting fraud should be one of the requirements in any engagement or employment in an organization as an auditor. 

          To emphasize the importance of detecting fraud, and its role in employment opportunities, specifically for internal auditors, the following quote is taken from an article related to a study titled, “The Importance of Internal Audit in Fraud Detection” by Paul Coram, Colin Ferguson, and Robyn Moroney. “In recent years the importance of good corporate governance has received significant public and regulatory attention.  A crucial part of an entity’s corporate governance is its internal audit function.  At the same time, there has been significant public concern about the level of fraud within organizations.”  In their study, they “assess whether organizations with an internal audit function are more likely to detect fraud.”  Their findings suggested that “internal audits add value through improving the control and monitoring environments within organizations to detect fraud, and that keeping the internal audit function within the organization is more effective than completely outsourcing that function.”

          This study leads me to believe that the roles, responsibilities, and career opportunities for internal and external auditors will expand at a rapid pace, and there is no reason to think otherwise.  With the amount of financial corruption throughout our society growing year after year, it is not incorrect to say that auditors, external and internal, are basically the financial world’s police.  Basically, auditing is going be a depression-proof profession due to the nature of fraud, and the ever-expanding companies worldwide.  Hopefully accounting students looking for a profession out of college look into becoming auditors, and continue to solidify the assumption that they really can police the financial world ethically and morally.

         In conclusion, external and internal auditors are the same in that they have an extremely important job to protect investor’s life savings.  They are different, however, in that external auditors should have a broader range of knowledge than do the internal auditors.  Regardless, accounting a quite possibly one of the greatest professions to enter into today, and auditing is only the tip of the “accounting iceberg”.

Internal and External Auditors

Part of an auditor’s job is to defend and serve the audited company’s stakeholders. Given the recent business downturns dealing with fraud and scandals, auditors are losing their credibility with the public. But these huge fraud cases give the auditing world more insight on what can go wrong when people do not do their jobs or do not behave ethically. Sarbanes-Oxley pushed the profession in the right direction. This held the CEO and the CFO responsible for an accurate and transparent representation of their financial statements.  It limited the officers and directors from receiving loans and limited their ability to trade their securities. Sarbanes-Oxley extended protection for whistle-blowers to combat fraud. It gave more job opportunities and power to internal auditors. The PCAOB was created to regulate standards in accounting and auditing for publically traded companies. The provisions were an essential step in creating stronger, more reliable financial statements and practices.  While external and internal auditors may differ in the roles and responsibilities they carry out, they both take the responsibility to protect the stakeholders from misrepresentation.

External Auditors’ Roles and Responsibilities

An external auditor is an independent service provider whose impact can provide significant influence on the organization being audited and its stakeholders. Even though they are not part of the organization, they play a key role in developing internal control. Auditors can comment on weaknesses in the accounting records, systems and controls that they review in the audit.  They provide a statistical analysis on the clarity and effectiveness of the accounting policies put in place by the company. They also help management become aware of evidence that may affect future audits. They can give advice management through recommendations in their audit notes or discussions. Constructive suggestions can improve the procedures for documentation more efficient, ethical, or fairly presentable. 

The roles and processes of an external auditor can vary from country to country. Due to the significant developments of FASB merging with IASB, perhaps soon enough experts from around the world can follow another’s work without discrepancies.  Until that day, auditors must have knowledge of the particular countries audit procedures as well as the business they are working with. External auditors do not have the benefit of working with the company on an everyday basis. A significant effort must be made to familiarize themselves with the company or the industry. This may be done through extensive training, study of the workings of the industry, to questions made to management about their operations. This is essential for a successful audit review.

 

A cornerstone of the difference between an internal auditor and an external auditor is company-wide independence. An external auditor must have independence. When reviewing a company’s financial statements cannot have any close ties with the company. This means no stocks, close relatives with stocks, management positions, etc. This policy was put into place to ensure a total objective review in which influences would not affect the outcome of the audit. Situations of this matter may be obvious; however sometimes there are various shades of gray. When in doubt, speak to a supervisor and use your best judgment! Sometimes it is better to not take the case if the auditor’s independence can be compromised.

 

The primary purpose of an audit is to review and verify the company’s financial statements to form an opinion about the company’s financial statements. They may give a qualified, unqualified, adverse opinion or even a disclaimer. Each one of these opinions can be vital for an organization. These opinions state whether the financial information was justly represented, misleading, or insufficient enough to form an opinion. Stakeholders can be influenced greatly by an audit. It may mean the difference on the company getting a bank loan or for an investor to bring in capital. These statements tell the public if the company is truthful and open with their financial information or if they seem to be hiding something they do not want anyone to see. External auditors are the police and judges of the financial public affairs. The goal is a safe and sound set of financial statements to protect private and public investment.

 

Internal Auditors’ Roles and Responsibilities

An internal auditor’s job is vital to a company. The desire of an internal audit staff is to look at the overall strategic goals of the company and help them excel in a reliable and ethical manner. They evaluate and improve the company’s systems of compliance, control, and risk assessment. With this review, the company can safely carry out its operations with reasonable confidence. Reviews made to internal control and risk management identify areas that need improvement. Recommendations are made to the proper personal to develop better business practices and performances. In these procedures, the storage of information and security is tested for effectiveness. Though the information gathered for financial statements needs to be transparent, the protection of customer sensitive information must be held in the utmost respect of the company. The internal auditor may make suggestions on how to better safeguard this information from being accessed by persons other than necessary personal.

An internal auditor must develop a strong understanding of the company it works for. Levels of experience, training, and education help the auditor assess business situations for better evaluation.  All auditors must continue their education throughout their career to keep themselves up to date on new and innovative accounting procedures, especially in the years soon to follow. An auditor must also understand their limits. When in doubt, ask questions! An internal auditor should meet with legal counsel to verify compliance with regulations and laws. IT specialist can keep the company current with any safeguards the company can benefit from. They should work with the external auditors to improve auditing practices.  Consultants can be useful for the company’s future planning. These third parties can be a benefit to any internal auditor. They can provide necessary information to further evaluate the effectiveness and efficiency of the company. 

Communication is important. There should an open flow of information between the auditor, audit committee, and management. This helps to avoid mistakes and miscommunications. This also considerably improves the auditors fair and objective work quality. With the increased protection for whistleblowers, an open communication can evaluate any allegations of fraud within the company. Fraud may be investigated and brought to justice faster and more cost effective if the information is freely transmitted between the related parties. An internal auditor’s primary function is to evaluate and improve the company’s finances and accounting procedures to ensure safe and ethical practices are conducted within the regulations of the law and related governances. 

Job Opportunities

Since the Sarbanes-Oxley Act of 2002, the job market for auditors has expanded to great demand. Even as we struggle to pull ourselves out of this recessed economy, accounting is one of the hottest jobs on the market.  Companies need to show the public more accountability due to the media blasting the endless frauds and scandals. Investment potential is low enough as it is. Countless bankruptcies plague our nation. People are losing their jobs left and right due to poor business practices. Skilled accountants are essential for pulling out of this recession. The demand for internal auditors is in excess because of the new regulations requiring an extensive network of auditors in major companies. Most companies are offering flexible schedules, benefits, signing bonuses, etc. These opportunities are especially in high demand in the biotech, medical, and finance worlds. The average salary of an accountant or auditor is $63,290. For a CPA the average salary is $66,240. These salaries and promotions can jump significantly upon experience and education. Auditing careers are rewarding in both monetary and emotionally aspects.

Conclusion

Internal and external auditors’ job description may vary in certain comparisons but a commonality keeps all hearts in check, protection of the public. Some may do it just for the money, but they forget the importance auditing provides for so many people. It might combat frauds that destroy businesses, pensions, lives… The audit might save jobs, important investment decisions, a family’s future… In the same way, police officers and soldiers risk their lives every day for our safety, remember your purpose is to protect and serve them and everyone else in a financial aspect. The next time you review a report, take an inventory count, or investigate a general ledger; remember who you are ensuring safety, ethics, and protection for: the public.

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