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Duties of an External Auditor

Businesses and organizations can have greater confidence in financial accuracy and compliance with generally acceptable accounting principles (GAAP), and other accounting standards, by using external auditors. Audits that are specialized can be done for employee benefits, nonprofits, and publicly traded companies.

External auditors provide an independent opinion after assessing the financial statements of a company. Cash flow statements , income statements and balance sheets must not contain material misstatements. External auditors report any discrepanciesresulting from fraud or error, along with recommendations for improvements. The following five key duties are required of external auditors:

Plan the Audit

When assessing the risks associated with their clients’ industries and businesses, qualified external auditors are able to gain a deep understanding. They only accept work that they can perform and consider their own expertise when planning.
Audit procedures:

Auditors learn about the accounting policies of clients to determine the likelihood of material misstatement. They reduce the chance of making a mistake by not verifying or correcting incorrect information. These professionals evaluate operations and use their findings to design audit procedures.
Evaluation of Audit Results

To assess the effectiveness of controls in mitigating risk, external auditors examine them. They conduct testing to assess the financial state of an organization’s financial statements. They must decide which tests should be run and what the results will mean.
Communicating Audit Results

Stakeholders are made to understand audit results when external auditors provide a detailed report that explains the findings. The report should be concise and clear, allowing stakeholders to make informed financial decisions about their organization’s financial health.
Documenting the Audit

Audits are documented by external auditors. They include information about their process, findings, and recommendations. These documents are used to reference subsequent audits.

What’s GAAP?

Important Hard Skills for External Auditors

Financial Analysis:

To identify risk factors and trends in financial statements, external auditors examine them. They use their financial analysis skills to assess the financial performance and stability of companies. They also make recommendations for improvement in areas where there are potential risks.
Analyse of Internal Control:

The information must be known by external auditors

Common internal control systems

To assess their effectiveness. External audits are focused on internal controls. External auditors need to be able identify unauthorised transactions and evaluate their impact on financial statements.
Auditing Standards

The GAAS and other accounting guidelines are essential for external auditors. The 2002 Sarbanes-Oxley Act requires that all U.S. public companies comply with the national GAAP for financial reporting.
Research:

Extern auditors conduct research on complex topics and issues in support of their audit findings. This includes researching financial statements for companies to give opinions about the accuracy.

Learn more about internal auditing

Key soft skills for external auditors

Written Communication:

Effectively preparing reports, auditors must communicate in writing. This documentation is used to reference future audits and helps them communicate their findings to clients.
Verbal communication:

External auditors communicate verbally with clients to understand their business and financial needs and ask pertinent questions. They then communicate objective findings and recommendations.
Problem-Solving:

To navigate the complexities of financial assessment, external auditors must be problem-solvers. These skills are used to create audit procedures and evaluate risks.
Attention to Details:

Auditing professionals who are knowledgeable in financial auditing carefully examine financial statements and other financial information. It is essential that an external auditor can spot small discrepancies in order to ensure accurate audits. Auditors must be attentive when reviewing documents, interviewing managers, and observing the processes.

More top accounting skills to succeed

Expertise of External Auditors

External auditors can be hired by organizations who are experts in particular industries or fields. An example of this is a healthcare company that hires an external auditor who has experience in the healthcare industry. The areas of expertise that external auditors are skilled in include operational audits and financial statements audits.

Financial Statement Audits

To confirm compliance with GAAP, financial statement auditors examine organizations’ financial statements. This involves reviewing financial records, testing internal controls and interviewing relevant staff.

Financial statement auditors who are successful have excellent analytical and critical thinking skills, as well as a deep understanding of accounting best practice. Financial statement auditors are often employed by public accounting firms. However, they can also work in large companies.

Most entry-level financial auditors work in a team to review financial reports. This role could be occupied by senior professionals who manage client portfolios or lead a team. A manager or partner is usually the person reporting to financial statement auditors.

Operational Audits

Operational auditing is a way to evaluate the internal controls, processes, or procedures of an organization. Operational auditors often review financial statements and accounting records. To gather information about an organization’s operations, they may interview or observe employees.

Operational auditors must have experience in auditing and accounting . They must also have strong problem-solving and analytical skills. Operational auditors work in a team and sometimes travel to other organizations to perform audits.

An entry-level operational auditor can audit smaller organizations or departments within larger companies. This role can be supervised by a senior professional who may also lead a team or oversee large-scale audits. A manager or director of auditoring reports to operational auditors.

Compliance Audits

The nature of an audit will determine the duties of compliance auditors. The primary goals of compliance auditing are usually to verify compliance and report on non-compliance. They also make recommendations for corrective actions.

Communication, research and attention to detail are all important skills for compliance auditing. Compliance auditors work in highly regulated sectors such as finance, healthcare, and government.

Some of their duties include reviewing compliance with regulations such as the HIPAA Privacy Rules or the Sarbanes-Oxley Act. Compliance auditors report to the compliance officers and chief financial officers.

How to become an external auditor

To launch a career as an external auditor, candidates must complete a bachelor’s degree in accounting (or a related field) and four years of full time study. Some companies require that external auditors earn a master’s in accounting and become certified public accountant (CPA), which may take an additional 2 to 3 years.

To verify their skills, potential external auditors may also seek other certificates. These include credentials such as certified fraud examiner or certified intern auditor. It takes approximately 4-6 years to become an external auditor. However, this can vary depending on your education and professional background.

Entry-level auditors are responsible for conducting audits under supervision of senior auditors. Senior-level professionals oversee often the entire audit process.

Outlook for External Auditor Jobs

Organizations continue to rely upon external auditors to ensure regulatory compliance, despite the complexity of financial reporting. External auditors are in high demand.

According to the U.S. Bureau of Labor Statistics, auditor and accountant jobs will grow by 7% between 2020-2030. BLS reports that the median annual salary of auditors was $77,250 in 2021. This is higher than the national average salary. Pay can vary depending on where you live, your experience, your industry and your specialization.

Career Spotlight: Colin Smith CPA

What is the difference between an internal and external auditor?

An external auditor is focused on the financial performance and assurance of financial statements. The investors/owners/creditors of the company they audit are their primary stakeholders. The job of an external auditor is to conduct inquiries, analysis, tests and other procedures in support of the conclusion that financial statements are not subject to fraud or material error.

The role of internal auditors is more operational and they are responsible for evaluating and assessing the company’s systems, controls and technology. They also identify organizational risks. Although their primary stakeholders are the management and board, internal auditors often complement and support external auditors’ work. Although the objectives and nature of an internal auditor may differ from those of an external auditor’s, they perform many of the same tasks as external auditors.

Please tell us about busy seasons for auditors. Which time of the year is the most important?

The “busy season” for an auditor is typically the first two to three months after the end of the fiscal year. This is when the majority of financial statements must be filed. The majority of companies have a calendar year. Therefore, the busy season for most auditors falls between January and March each year. External auditors of public companies also have busy weeks due to quarterly filing deadlines.

You’ve spent over a decade in public accounting. What was your experience as an external auditor for? What was the transition like from your previous role to your current one?

After 6+ years of working as an external auditor, I moved on to accounting advisory. I was a support auditor team member for acquisitions and complex technical accounting matters, so I have probably been an auditor for 8+ year. Although the transition to financial accounting advisory was not easy, my experience as an external auditor gave me a solid foundation in financial accounting reporting and financial accounting.

What can your experience as an auditor externally help you as an accountant. What is your interaction with auditors?

As an external auditor, I was able to really understand the accounting processes of my clients and verify that their estimates, calculations, and entries were accurate. I also learned a lot about professional writing, which is a skill that is often overlooked in the accounting industry. Although most accountants are able to master the debits or credits with enough practice, it takes some skill to be able to clearly explain and articulate accounting positions in a memo, workpaper, policy document, report, or memo. This skill is difficult to acquire if you’ve never worked as an auditor.

My primary job now is in accounting advisory. I support an accounting team by fulfilling external audit requests and providing technical accounting analysis. Because I have been an external auditor for many years, my knowledge of the standards and how they are met is invaluable.

As an external auditor, I was able to really understand the accounting processes of my client and verify that their estimates and calculations were correct.

What was a typical day for an external auditor like for you? What are you seeing external auditors doing that is different now?

Although life as an auditor external can be chaotic, it’s also a great place to grow and learn.

Multiple projects and work streams could be running simultaneously, which made every day a bit different. On some days, I might spend 5-6 hours meeting with clients and take tons of notes. Other days, I might be spending most of my time at my computer doing audit tests or writing a memo. Apart from the work I planned for the day I did, I often had multiple check-ins with my senior managers and had impromptu conversations with them. It was not uncommon to need to change gears to assist in another area.

Although technology may make some things easier, external auditors are still doing many of the same tasks. It’s easier to arrange a virtual meeting and meet with clients via videoconferencing and remote work than to make a site visit to their offices or have lunch with them. While technology and audit tools can make certain processes more efficient, there are also potential headaches.

What education should people pursue to be an external auditor? What certifications should they pursue beyond a degree?

You will need to have an accounting degree, either undergrad or master’s, and 150 semester hours. This is required by most states to pass the CPA exam. Because of the specialized nature of accounting, many firms won’t hire people unless they have an accounting education.

You may want to get the certified internal auditor license (CIA) if you are planning to work as an auditor. This will allow you to stand out from other auditors in your field.

Colin Smith, a CPA and an accounting consultant, specializes in financial accounting. Colin has spent 13+ years in Big Four companies. He recently opened his own consulting firm to assist both Fortune 500 and aspiring public companies with the most difficult financial accounting and reporting problems.

You can learn more about Colin’s current job on our

Financial accounting career

page.

Questions about the Job Description of an External Auditor

What are the responsibilities and duties of an external auditor?

To assess the accuracy of financial statements, external auditors review them to determine if they conform with GAAP standards or other financial best practices.

What qualifications are required for an external auditor?

Although there is not yet a standard set of qualifications for external auditors (or any other field), successful candidates usually have a minimum of a bachelor’s degree and experience in the type of organization they audit.

Who employs an external auditor?

To ensure that financial statements are accurate and free of material misstatements, companies hire external auditors. These accounting experts are hired by firms to evaluate compliance with GAAP, regulations and internal policies.

External audit is a career that’s rewarding?

Auditors are highly sought after because organizations need to ensure that they are financially sound. According to the BLS, there will be 7% growth in auditor and accountant jobs. This is on par with national growth projections for all jobs. BLS data also indicates that auditors and accountants have higher salaries than the average.

What’s the difference between external and internal auditors?

While external auditors offer independent assessments of the companies they audit, internal auditors help leaders to improve their financial operations and performance. Both accounting specialists evaluate financial statements and accounting transactions to ensure compliance with regulatory standards.

The post External Auditors Career Overview was first published on Accounting.com.

Author: Justin Young

Justin Young HoneyHat™

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