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Different types of audits are carried out regularly in all companies in the world to review the management of their accounting processes during a certain period of time.
This in turn requires the hiring of different types of auditors who will work on the accounting books, where the financial movements of the company or organization must be registered, but they will also review the production processes to verify that these are faithfully reflected in the books.
Regardless of the type of auditors used, all will have the objective of determining the situation of a company from the financial point of view, for which the so-called financial audit will be carried out.
There are also operational audits, which are carried out on the operations of a certain organization and which help to examine the efficiency of its work teams, both human and technical.
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Likewise, there are legal audits, which seek to review the compliance of the company or organization with certain laws and regulations, which may be in environmental matters, occupational safety and hygiene, urban zoning, etc.
Different types of auditors cover all the needs of this type of evaluation. We are going to analyze what their function consists of and what are the types of auditors that exist today.
What is an audit?
To better understand the role of an auditor, we will explain what the action of “auditing” consists of. This is the process by which a company specialized in the accounting area or a professional in this field is hired to review the information provided by the accounting area of the entity, both public and private, that is the object of interest of a controlling entity of the government or its own shareholders.
This information is valuable, since it can be deduced if the company is complying with Generally Accepted Accounting Principles (GAAP) and the laws of the country where it is operating.
What is an auditor?
The auditor is a person trained in the accounting area, certified by training institutes or universities and endorsed or authorized to carry out audits (complying with the regulations of each country).
The auditor’s work focuses on analyzing the accounting documents and, depending on the quality and transparency of the data provided by the company or institution, issuing a favorable opinion or not on the veracity and accuracy of these.
This opinion indicates whether the company has complied with universally accepted accounting standards and maintains clear and complete financial records and all of its transactions are faithfully reflected in the books.
It will also verify if what is recorded in the accounting books is a reflection of the operational and productive reality of the company. For example, if the books indicate that a project was executed, sale of products, purchase of raw materials, plant expansion or equipment acquisition or replacement, the auditor must verify that this has been done effectively.
The auditor’s work culminates in presenting a final report in which he will express his opinion, favorable or not, on the degree of veracity and clarity that the organization has in its accounting and, therefore, in its financial system.
This report will be delivered to the body that requested and hired the audit, which may be a government comptroller or the company’s own shareholders.
What are the types of auditors?
Due to the complexity of modern businesses, the accountancy profession has specialized in a wide variety of types, each dedicated to a specific function. Let’s see what the types of auditors are.
Internal auditors. Internal auditors are people who work in the same organizations that they audit, that is, they are part of your payroll. They work in the Accounting or equivalent departments and their role is to review employee performance, compliance with company regulations, and the operation of financial and accounting systems.
Thanks to reports made by internal auditors, company leaders can be informed at any time they need about what is happening within the company and deal with problems or concerns in advance.
Government auditors. As the name implies, government auditors work for agencies attached to the federal or central government, depending on the country in which the company is located.
In the case of the United States, government auditors belong to the United States Accounting Office and their job is to audit the different federal agencies that operate in that country.
The reports made by US government auditors are then reported to the Comptroller General and the US Congress, which use them to create and manage policies and budgets.
In addition, most state and municipal governments usually have similar departments to audit their respective attached agencies.
In the case of other countries, the government auditors are attached to the tax collecting agencies or to the National Comptrollers’ Offices. Their reports are presented to these entities and then to the respective National Congresses or to the Presidency of the nation.
Independent auditors. Independent auditors do not work for any government agency or private company that is being audited.
Their hiring is explicitly required in many cases by law when it comes to interventions or inspections in private or public companies, or even local or state governments suspected of having committed fraud or administrative irregularities.
In other cases, laws or regulations require independent audits to support certain procedures that companies must comply with from time to time or when they wish to launch and sell shares on the stock market.
Ultimately, the importance of the independent auditor is that he guarantees an impartial and interest-free report on the financial statements, thus preventing organizations from issuing misleading financial information.
Considerations about auditors and their importance
In most cases, internal and government auditors are sufficient to manage and oversee the internal functioning of the organizations they review.
However, independent auditors are considered ideal in the most complicated cases where there could be conflicts of interest or internal pressure, such as fraud in projects financed with public funds or in companies with a dubious financial record.
Independent auditors are therefore highly valued by investment entities and partner groups, who want to have accurate financial reports on hand before putting their money into a project of any kind.
Another important consideration is that under the strict legal codes that prevail in an increasingly globalized market, companies are required to demonstrate that they make efficient use of their resources.
In fact, companies are not isolated entities where they can do what their owners want. They are obliged to comply with their workers, who depend on them for their subsistence, as well as with suppliers of raw materials and financial creditors.
In addition, compliance with legal regulations implies an expense that many companies may seek to avoid by breaking some regulations, so auditors have a decisive role to avoid this
To this is added that all governments expect the payment of taxes by citizens and companies and thanks to the auditors it can be ensured that all comply with this obligation.
Finally, the auditor is the greatest ally of investors and future suppliers, because through their work they will know if a company or entity is trustworthy or not.