Auditor: What It Is, 4 Types, and Qualifications

Daniel Liberto

Daniel Liberto is a journalist with over 10 years of experience working with publications such as the Financial Times, The Independent, and Investors Chronicle.

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Updated June 04, 2024

Reviewed byJulius Mansa

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Vikki Velasquez

Fact checked byVikki Velasquez

Vikki Velasquez is a researcher and writer who has managed, coordinated, and directed various community and nonprofit organizations. She has conducted in-depth research on social and economic issues and has also revised and edited educational materials for the Greater Richmond area.

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Part of the Series

Guide to Accounting

Accounting Explained With Brief History and Modern Job Requirements

Accounting Basics

Accounting Theories and Concepts

Accounting Methods: Accrual vs. Cash

Accounting Oversight and Regulations

Financial Statements

Corporate Accounting

Public Accounting: Financial Audit and Taxation

Accounting Systems and Record Keeping

Accounting for Inventory

What Is an Auditor?

An auditor is a person authorized to review and verify the accuracy offinancial records and ensure that companies comply with tax laws. They protect businesses from fraud, point out discrepancies inaccounting methods and, on occasion, work on a consultancy basis, helping organizations to spot ways to boostoperational efficiency. Auditors work in various capacities within different industries.

Key Takeaways

The main duty of an auditor is to determine whether financial statements follow generally accepted accounting principles (GAAP).
The Securities and Exchange Commission (SEC) requires all public companies to conduct regular reviews by external auditors, in compliance with official auditing procedures.
There are several different types of auditors, including those hired to work in-house for companies and those who work for an outside audit firm.
The final judgment of an audit report can be either qualified or unqualified.

Understanding an Auditor

Auditors assess financial operations and ensure that organizations are run efficiently. They are tasked with tracking cash flow from beginning to end and verifying that an organization’s funds are properly accounted for.

In the case of public companies, the main duty of an auditor is to determine whether financial statements follow generally accepted accounting principles (GAAP). To meet this requirement, auditorsinspect accounting data, financial records, and operational aspects of a business and take detailed notes on each step of the process, known as anaudit trail.

Once complete, the auditor’s findings are presented in a report that appears as a preface in financial statements. Separate, private reports may also be issued to company management and regulatory authorities as well.

The Securities and Exchange Commission (SEC) demands that the books of all public companies are regularly examined by external,independent auditors, in compliance with official auditing procedures. Official procedures are established by the International Auditing and Assurance Standards Board (IAASB), a committee of theInternational Federation of Accountants (IFAC).

Unqualified Opinion vs. Qualified Opinion

Auditor reports are usually accompanied by anunqualified opinion. These statements confirm that the company's financial statements conform to GAAP, without providing judgment or an interpretation.

When an auditor is unable to give an unqualified opinion, they will issue aqualified opinion, a statement suggesting that the information provided is limited in scope and/or the company being audited has not maintained GAAP accounting principles.

Auditors assure potential investors that a company’s finances are in order and accurate, as well as provide a clear picture of a company’s worth to help investors make informed decisions.

Types of Auditors

Internal auditorsare hired by organizations to provide in-house, independent, and objective evaluations of financial and operational business activities, includingcorporate governance. Theyreport their findings, including tips on how to better run the business, back to senior management.
External auditorsusually work in conjunction with government agencies. They are tasked with providingobjective and public opinions about the organization's financial statements and whether they fairly and accurately represent the organization's financial position.
Government auditors maintain and examine records of government agencies and of private businesses or individualsperforming activities subject to government regulations or taxation. Auditors employed through the government ensure revenues are received and spent according to laws and regulations. They detect embezzlement and fraud, analyze agency accounting controls, and evaluate risk management.
Forensic auditorsspecialize in crime and are used by law enforcement organizations.

Auditor Qualifications

External auditors working for public accounting firms require a Certified Public Accountant (CPA) license, a professional certification awarded by the American Institute of Certified Public Accountants. In addition to this certification, these auditors also need to obtain state CPA certification. Requirements vary, although most states do demand a CPA designation and two years of professional work experience in public accounting.

Qualifications forinternal auditors are less rigorous. Internal auditors are encouraged to get CPA accreditation, although it is not always mandatory. Instead, a bachelor's degree in subjects such as finance and other business disciplines, together with appropriate experience and skills, is often acceptable.

Special Considerations

Auditors are not responsible for transactions that occur after the date of their reports. Moreover, they are not necessarily required to detect all instances of fraud or financial misrepresentation; that responsibility primarily lies with an organization's management team.

Audits are mainly designed to determine whether a company’s financial statements are “reasonably stated.” In other words, this means that audits do not always cover enough ground to identify cases of fraud. In short, a clean audit offers no guarantee that an organization’s accounting is completely above board.

Article Sources

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