It is a misconception that the responsibilities of an external auditor can be summed up to individuals that examine financial records with the goal of forming an opinion about the fairness of information presented within a company’s financial statements. An audit, in a broader sense, is a method of creating an opinion or conclusion about processes, transactions, or other information when compared to a standard or criteria. There are a variety of different services or reasons a company may need to engage an auditor.
If embraced, business owners can use auditors as tools to enhance processes and procedures, and create a tone from the top that deters fraudulent activity. This holds both management and employees accountable to execute their roles and responsibilities. In this post, we will review a number of topics to gain an understanding of an auditor’s responsibilities in completing an audit and the professional duties they hold as an external auditor.
What Are the Main Functions of An Auditor?
Below are examples of different audit functions, the auditor’s duties, and the scope of work.
What Are the Responsibilities of An Internal Auditor?
An internal auditor is responsible for performing procedures that test the efficiency and effectiveness of company internal controls put in place to achieve business objectives. The scope of an internal audit includes all financial and operational controls that are used to create maximum productivity at a company. Example findings or duties include:
- Provide recommendations to improve weak internal controls.
- Investigate instances of possible fraud (even those considered immaterial).
- Perform reconciliations of financial and operating information.
- Monitor compliance with industry standards, laws, and guidelines.
- Evaluate whether processes and procedures are functioning properly.
What Are the Responsibilities of a Forensic Auditor?
An auditor is responsible for using a mixture of audit and investigative techniques to determine whether the suspicion of fraud is warranted and if so, the effects of the fraud. The scope of forensic audits can be as wide as necessary and can take a significant amount of time and resources. Generally, a successful forensic audit relies greatly on the types of monitoring a company has in place. This allows a forensic auditor to utilize logs and information captured as part of monitoring to put an accurate timeline together.
Attestation Services
An external auditor is responsible for providing different services to clients such as guidance on accounting-related matters, technical disciplines, or industry knowledge. The scope of work depends on services rendered but is generally defined by an agreement between the client and auditor.
Auditors report on subject matters like the design and operating effectiveness of a service organization’s internal controls over a certain objective such as security. This is also known as System and Organization Controls (SOC) Reports. See below for more information on this type of report.
Information System Audit: Sample Attestation Service
An external auditor is responsible for evaluating the internal controls pertinent to a company’s IT infrastructure. The scope of information system audits can be determined based on a specific objective but generally include the following steps.
- Suitability of the design and operational effectiveness of internal controls related to the security of information. Types of internal controls include logical and physical access, data transmission, and system health monitoring. See more about specifics related to SOC reports at some of our other posts, such as “What is a SOC 1 Report?”
- Effectiveness of maintaining information security and privacy.
- Completeness and Accuracy of information processing and data integrity.
- Evaluate whether the system development life cycle meets the necessary standards.
What Are the Duties & Responsibilities of An External Auditor?
The AICPA has defined the professional responsibilities of auditors performing attestation services. As outlined in AU Section 110, an auditor’s responsibilities when performing a financial statement audit is to create a plan and then execute that plan by collecting applicable supporting evidence to make a determination, or opinion, on whether or not the financial statements presented by management are free and clear of any material misstatements that were presented by way of error or fraudulent activity. Any errors or fraud that do not meet the threshold for materiality are not the responsibility of the auditor, per PCAOB auditing standards.
For other types of attestation examinations, auditors are responsible for following SSAE 18. SSAE 18 details an auditor’s responsibilities in performing an audit, and reporting on the opinion, conclusion, or findings in accordance with the attestation standards and type of engagement. While an external auditor is responsible for making sure that the opinion, findings, or conclusion are reported in accordance with requirements, the ultimate responsibility of the subject matter itself is still the responsibility of the client. Let’s talk a little more about that.
Another responsibility of an auditor includes the request for management to supply a written and signed assertion. Why is an assertion so important you may ask? The simple answer is that auditors base their opinion, conclusion, or findings on the information provided by management. Because of this, management is responsible for explicitly stating to the users of their audit report that the information within the report is complete and accurate. This is all outlined as part of the assertion. If management will not provide this assertion, an auditor will be required to provide a modified opinion.
Who is Responsible for Audit Risk?
Audit risk is the risk that an auditor will provide the wrong opinion based on the testing completed. Both the auditor and management are responsible for audit risk. The auditor is responsible as they have to have the professional skepticism required to review the evidence provided to support their opinion. Management, on the other hand, must provide information that is complete and accurate.
What Are the Auditor’s Responsibilities with Respect to Subsequent Events?
Every audit eventually comes to an end, sad I know! At the end of every audit, the auditor is responsible for inquiring about subsequent events. Subsequent events are those events, considered material, that occur after the end of the period but prior to the report date that could impact the following:
- service description,
- design of controls,
- impact operating effectiveness, or
- management’s assertion within a SOC report.
Subsequent events in other types of audits, such as a financial statement, would be those that impact the financial statements or disclosures.
Where Do Auditors Get Their Guidelines?
When performing audits under AICPA guidance, auditors utilize the Generally Accepted Auditing Standards (GAAS) which fall into categories that include general standards, fieldwork standards, and reporting standards. Within these standards, specific guides are used to complete the audit type. For example, attestation audits follow Statements on Standards for Attestation Engagements (SSAEs).
Where Do Auditors Report Their Findings?
At times, testing will result in an audit finding. In SOC reports, audit findings are noted within section IV of the report. Additionally, the final section of the report allows for management to respond to any exceptions or findings noted. These should be reviewed to determine whether processes have been put into place to mitigate the risk of them occurring in the future.
What Skills Do Auditors Need?
Auditors are required to retain the type of skills such as proper education, industry background, and working knowledge when acting as an external auditor under SSAE 18. Having the right type of expertise is particularly essential because auditors are oftentimes required to exercise their own professional judgment in determining whether certain criteria are met or if an opinion should be qualified. In addition to having the right type of proficiency, external auditors are also expected to follow certain ethics requirements. These requirements are outlined in the AICPA’s Application Code of Professionalism.
Depending on the type of audit or attestation engagement underway, the type of designations required will likely differ. A good place to start is at CPA firms. If your organization requires an attestation engagement, the report will only be legitimate if it is signed by a CPA or CPA firm.
This is, however, just the beginning. Attestation services can include a number of different processes from financial services, information technology services, cryptocurrency, oil and gas, health care audits, and the list goes on. When engaging an external auditor to perform these services, doing the proper due diligence such as checking designations such as CISSP, CISA, or past references should be reviewed to determine whether those working on the engagement have the right type of background.
Why Are Auditing & the Auditor Important?
Many times, people cringe at the sight of auditors, but it is important to understand what auditors do and their function in creating a better business. Auditors provide the opportunity for business owners to incorporate independence into the review process of their internal control program. Additionally, the process helps to define gaps, weak controls, and possible risks. Moreover, recognizing the different functions auditors can provide, and using their services as an asset, can ultimately provide companies with an edge over their competitors.
Do Auditors Get Audited?
In fact, yes, auditors do get audited by a third-party auditor. This is done as a way to determine whether a CPA firm and the individuals working there have the correct technical knowledge and that processes are in place to follow planning and reporting requirements. The AICPA Peer Review Program is completed once every three years.
Summarizing the Auditor Responsibilities & Duties
Hopefully, as you read through this post, it became clear that choosing the right auditor for the type of engagement your organization needs is extremely important. The responsibilities of the auditor and client are truly maximized when both parties understand their roles in the audit process. In summary, those external auditor responsibilities include the following:
- CPA Firm will be conducting the audit
- CPA Firm staff working on the audit have the necessary skills to provide professional judgment
- CPA Firm has been through a peer review at least one time in the last three years
- CPA Firm requires that management provide a written assertion
- CPA Firm acts in a professional and ethical manner
These key concepts when picking an auditor should be fundamental as your organization decides on engaging an external auditor in the future.
If you have any additional audit questions or concerns, or have an upcoming audit engagement, and are in need of CPA services, please contact Linford & Co.
This article was originally published on 1/5/2021 and was updated on 7/26/2023.
Jaclyn Finney started her career as an auditor in 2009. She started with Linford & Co., LLP. in 2016 and is a partner with the firm. She is a CISA with a special focus on SOC, HITRUST, FedRAMP and royalty examinations. Jaclyn works with her clients to provide a process that meets the needs of each customer and generates a tailored report that is useful to the client and the users of the report.