A quick glance at a typical course list for an accountancy program will usually include ‘Auditing’ listed as an entirely different subject from accounting. Here, we will attempt to explain what auditing is, as well as its different applications.
What is Auditing?
In accountancy, auditing is a type of financial investigation. It entails examining the accounting and financial records of a company to ensure that they comply with taxation regulations and that their financial records balance and are up to date. Basically, their primary responsibility is to ensure that proper procedure is being followed. This is done by a type of accountant who is authorized to conduct these reviews who is known as an ‘auditor.’ They can either work independently or as part of a firm. In some cases, they also work for the company whom they are auditing as well. An accountant cannot practice as an auditor without certification from authorized regulatory body. In the US, auditors are generally either accredited Certified Professional Accountants (CPAs) or Chartered Internal Auditor (CIAs).
What are the different types of auditing?
The two main types of auditing are external auditing and internal auditing.
External auditors are often referred to as ‘statutory auditors who are external to the company and operate independently from them. They are responsible for verifying whether there are any discrepancies or missing documents that may be a result of either error or fraud, as well as confirming the effectiveness of the company’s record-keeping and internal controls. If major problems are found, they may either withdraw a company’s accreditation, or, if they are representing a client, they may advise that client to go elsewhere.
Internal auditors are employed by the company itself to assist them in improving their financial systems and to improve their risk management and governance processes, among other functions. Their main objectives are to help identify problems and improve efficiency.
What are examples of auditing jobs?
External auditors will be audited by external auditors to ensure that their overall financial structure is in compliance. This is also known as ‘financial statement auditing’ because the financial records are being assessed for accuracy.
Forensic auditing entails examining an organization or individual’s accounts and financial information to ensure that information is reported correctly according to the tax laws and to verify that the reported amount of tax is correct. The IRS will only conduct an audit when they have reason to suspect that there is an error or fraud with the amount reported by the entity.
IT audits involve examining the accounting programs used by companies to verify that they are secure against tampering and hacks so as to prevent fraud and other illegal activities from occurring. If any weaknesses are found, the auditor will then make recommendations for a how to improve the software.
Compliance auditing involves evaluating whether a company is following the government or umbrella organization’s rules and regulations.
There are many more types of auditing positions than this. However, as you can tell, they are all fairly similar; it is just their objectives are different.