The auditor`s main report is prepared in a format required by auditing standards and aims to determine whether the financial statements present fairly and comply with legal requirements. If other items that need to be brought to the client`s attention come to light, they will be communicated to the directors in a “management letter”. The activity of external auditor begins with a bachelor`s degree at a four-year accredited university. Most external auditors study accounting, finance, business administration, mathematics or statistics. Some selected universities offer bachelor`s degree programs in auditing. It is recommended to acquire at least two years of professional experience in accounting. It is common for external auditors to start as accountants, accountants and junior auditors. The path to graduate school for a Master of Accounting (MAcc) or MBA could facilitate faster promotion. All auditors who file reports with the SEC must meet the 150-hour requirement to become a Certified Public Accountant (CPA). According to the Association of Certified Fraud Examiners, successful completion of the Certified Fraud Examiner (CFE) is also recommended for external examiners. For publicly traded companies in the United States, the Sarbanes-Oxley Act (SOX) has imposed strict requirements on external auditors when assessing internal controls and financial reporting.
In many countries, external auditors of nationalized commercial enterprises are appointed by an independent government agency such as the Comptroller and Auditor General. Securities commissions may also impose specific requirements and roles on external auditors, including strict rules for determining independence. [4] Companies typically conduct external audits for two reasons:1. Legal obligation: Large companies are generally required by law to have external audits carried out by independent auditors. Internal auditors can publish their findings in any type of reporting format, while external auditors must use specific formats for their audit opinions and management letters. There is no external audit follow-up until the planning phase of next year`s audit, where past issues should be considered. External auditors are accountable to shareholders or, in the public sector, to a legislative body such as Parliament. They are not accountable to the auditee`s management and senior management does not determine the scope and scope of their audit activities. – Reassure shareholders: Shareholders are usually remote and have a small stake in the operation of the company. One of the main functions of the external auditors is therefore to protect the interests of shareholders. The external auditor is not under the influence of the company and ensures that the company is profitable and conducted in the best interests of shareholders.
– Support a sound crisis and risk management strategy: External audits can also help develop effective crisis management plans when a financial crisis hits the company. It provides the Board and management with an effective strategy to maintain investor confidence. Examines whether business practices help the company manage its risks and achieve its strategic objectives – they can cover both operational and financial issues. If you are looking for in-demand audit jobs, you should also consider becoming an external auditor. Unlike internal auditors, who are hired directly by an organization, external auditors are external consultants who independently review the company`s financial records. Under the Securities and Exchange Act, publicly traded companies are required to consult with an external auditor. External auditors are often preferred because they have not established relationships with employees and are not biased in their findings. Stricter regulations are likely to lead to the need for more external auditors, particularly in the financial sector.
The Bureau of Labor Statistics predicts that the employment of external accountants will increase by 11% through 2024, which is above average. Review the job profile below to determine if external audits are your best niche. Internal auditors do not need to be CPAs, while a CPA must guide the activities of external auditors. 2. Shareholder requirement: Report to shareholders on their findings regarding accounting reporting and the financial performance of the corporation. In some countries, accounting firms may be organized as LLCs or corporations. The organization of audit firms has been debated in recent years due to liability issues. For example, there are rules in EU Member States that more than 75% of the members of an audit firm must be qualified auditors.
[5] In India, audit firms can only be partnerships of qualified members of the Institute of Chartered Accountants of India. In the case of external audits, legal requirements vary; Some businesses, such as small businesses, may be exempt from auditing their financial statements. The obligation to carry out an external audit may be required from third parties, such as banks or shareholders. The statutes agreed upon when establishing an organisation and the articles of association may also include a requirement for an external audit function. I hope this summary has helped clarify some of the questions you may have had about the differences between internal and external audit. In the United States, the external auditor also audits the annual financial statements and their preparation. During the review, auditors are generally required to check off the numbers, link them to the general ledger and inquire with management. In preparing, auditors should review the financial statements to ensure that they are free from obvious misstatements and errors. An external auditor may perform a full audit, a balance sheet audit only, a certificate of internal control over financial reporting or other agreed external audit procedures. [6] The type of appointment, qualifications and format of an external auditor`s reports are defined by law, which varies according to case law.
