Auditor: Definition, Qualities & Types of Auditors

An auditor is not bound to be defective, approach his work with suspicion, or with the foregone conclusion that something is wrong. He is a watchdog but not a bloodhound. He is justified in believing servants of the company and is entitled to rely upon their representations, provided he takes reasonable care.

An auditor is not bound to assume when he comes to do his duty that he is dealing with fraudulent and dishonest people; if circumstances of suspicion arise, he has to probe them to the bottom.

Definition of an Auditor

An auditor is responsible for judging the validity and reliability of a company by evaluating evidence and financial reports with established standards.

The person (or firm) doing the audit and ultimately responsible for the audit results is called an auditor.

An auditor multiple his hand by assisting with the work, but still, he alone is responsible for what he does and what others do for him.

So, an auditor is a professional that accumulates and evaluates evidence to report on the degree to a company’s assertions that they comply with an established set of procedures or standards (criteria).

The following statements of famous Judges have been made from time to time regarding the qualities of an auditor;

• “An auditor is not bound to be defective, approach his work with suspicion, or the foregone conclusion that there is something wrong. He is a watchdog but not a bloodhound. He is justified in believing servants of the company and is entitled to rely upon their representations, provided he takes reasonable care.” (Lopes, L.G. in re Kingston Cotton Mills case, 1896).
• “An auditor is not bound to assume when he comes to do his duty that he is dealing with fraudulent and dishonest people…………………………………. if circumstances of suspicion arise…… it is his duty to probe them to the bottom,” – Lord Alverstone, C.J. The London Oil Storage Co., Ltd, vs. Seear Hasluck and Co. (1904).
• If the course of these long and arduous audits, the auditor has in even one instance fallen short of the strict duty of an auditor, he cannot, I apprehend, be excused merely because, in general, he displayed the highest degree of care and skill.” Romer J., in The City and Equitable Fire Insurance Co., Ltd. (1924)
• “He is not an insurer; he does not guarantee that the books do correctly show the true position of the company’s affairs“; Lord Justice Lindley.

Types of Auditors

Auditors carefully examine financial records to evaluate an entity’s financial position and the authenticity of its data.

This requires experience not only in all types of accounting practices but also in various tax, laws, and financial regulations governing the use of certain documents.

While it takes a highly trained accountant to work as an auditor, different types of auditors have different audit aims. There are four main types of auditors who conduct these procedures.

Independent/External Auditors

Independent professional audit services providers usually have Chartered Accountants (CAs) who are either individual practitioners or members of public accounting firms who render professional auditing services to clients.

In general, licensing involves passing the uniform CA examination and obtaining practical experience in auditing.

Internal Auditors

Internal Auditors are the company’s in-house expert auditors who maintain internal control and audit the company’s internal activities.

Internal auditors are employees of the organization they audit. This type of audit is involved in an independent evaluation of evidence, called internal auditing, within an organization as a service to the organization.

The objective of internal auditing is to assist the organization’s management in effectively discharging its responsibilities.

Government Auditors

Government auditors employ various local, state, and federal government auditors. Auditors working with various government agencies; why audit internal agency audit and/or audit the corporations by court order or government law.

At the federal level, the three primary agencies are the General Accounting Offices (GAO), the Internal Revenue Services (IRS), and the Defense Contract Audit Agency.

Forensic Auditors

Forensic Auditors are hired to play Sherlock. Auditors that specialize in crimes and are used by law enforcement organizations.

Forensic auditors specialize in crimes and are used by law enforcement organizations when financial documents are involved in a crime.

This does not necessarily mean the crime was financial (although this can be the case). Rather, the law enforcement organization needs to track money used to determine where it began or ended up.

Qualities of an Auditor

An efficient auditor must have certain qualities besides Professional qualifications. He needs to carry out the audit efficiently and smoothly.

1. An auditor needs to be well versed in the fundamental principles and theory of all branches of accounting, e.g., general accounting, cost accounts, income tax, etc. A person can’t audit the accounts unless he knows how to prepare them. He should be aware of the latest development in accounting techniques so that he may modify his work procedure.
2. He should not pass a transaction unless he knows that it is correct. This is possible only when one knows thoroughly well the principles of accounting.
3. He should be able to grasp quickly the technical details of the business whose accounts he is auditing. If possible, he should pay a visit to the works of his client before he commences his work.
4. He should be prepared to seek elucidation on technical questions rather than show a false pride or fear of displaying his ignorance.
5. He should be quite familiar with the company and mercantile laws and be a complete master of the principles of auditing.
6. He must be tactful and scrupulously honest. He must not certify what he does not believe to be true and take reasonable care and skill before he believes what he certifies is true.
7. Others must not directly or indirectly influence him in discharging his duties.
8. Sometimes he is put in a very awkward position when his duty to his client is opposed to his interests, in which case he must have the courage to carry out his duty faithfully and honestly, even if such a step harms him. In the long run, this policy will greatly value him. He will acquire a reputation for his honesty, bringing him more business.
9. He must be prepared to resign rather than sign a balance sheet, which he knows does not exhibit a true and fair view of the state of affairs of the concern and thus give a false report.
10. He should not disclose the secrets of his clients.
11. He must have the tact to put intelligent questions to extract full information.
12. He must not adopt an attitude of suspicion.
13. He must be prepared to hear arguments and must be reasonable.
14. He must be vigilant, cautious, methodical, and accurate.
15. He should be able to write the report correctly, concisely, and forcefully.
16. He should have an understanding of the general principles of economics.
17. He should have thorough training in the business organization, management, and finance.
18. Last but not least, he should have “Common Sense.”

Conclusion

Auditors’ roles are intertwined with the evolution of the auditing theory itself. As auditing evolved based on circumstances, the evolution directly influenced auditors’ functions and the entire practice.