Auditor

What Is an Auditor?

An auditor is a professional who reviews an organization's financial statements and the records behind them. The goal is to form an opinion on whether those statements are free of material misstatement and were prepared under an accepted set of accounting standards, such as those used in the United States or internationally. Auditors do not run the business or set its strategy. Their role is to test the information and report what they find.

External and Internal Auditors

External auditors are independent outside firms hired to review a company's annual financial statements and issue a formal report, which is shared with shareholders. Internal auditors are employees of the organization who assess its controls, processes, and risk management, and they typically report to senior management or the board of directors. Both types test evidence, but their purposes and reporting lines differ.

How an Audit Works

An external audit usually involves planning the work, testing internal controls, checking account balances on a sample basis, and gathering evidence such as bank confirmations and supporting documents. The auditor then issues an opinion. The most common result is an "unqualified" opinion, meaning the statements are presented fairly in all material respects. A "qualified" opinion notes specific exceptions. An "adverse" opinion says the statements are not fairly presented. A "disclaimer of opinion" means the auditor could not obtain enough evidence to reach a conclusion.

An audit provides reasonable assurance, not a guarantee. Auditors work with samples, professional judgment, and information supplied by management, so they can miss errors or fraud, particularly when deliberate concealment is involved.

Why Auditors Matter to Investors

Investors rely on audited figures when reviewing earnings per share and other measures used in company analysis. An audit adds an independent check to those numbers, but it does not show whether a company is a sound investment. Public companies in the United States have their audits overseen by the Public Company Accounting Oversight Board, which was created by the Sarbanes-Oxley Act of 2002. Auditor independence rules exist to limit conflicts of interest, such as an audit firm providing other services to the same client that could affect its objectivity.