auditors

THE AUDITORS

The function and role of the auditors is to audit a company’s account before their presentation to members. The main objective of an auditor are to certify the correct and effectiveness of the financial position at the company that have been shown in the loss and profit account and also at the balance sheet. This is important to detect any errors and at the same time to detect any fraud. Another function of an auditor, to make an examination on the company’s account before the account is being presented to the shareholders of the company. This process will make sure that the auditors of the company will report to the shareholders on the circumstances that have been committed on that particular account.

Generally, the role and functions of the auditors of the company is:
•To determine and make report whether the account that has been audited is give true and wide information about the financial status of the company.
•It also important to for the company compliance that has a connection to the provision of the Act.

Company Act stated that:

•Each company must have an auditors to control their accounts

•The auditor so appointed must be an approved company auditor and must not be otherwise closely associated with the company.

As a conclusion that we can make, the auditors is very important for the company because they play a very important role to the company, shareholders and also for the third parties of the company. The auditor also must be independence and should not bias for what they have done. This is because the report that they will be produced will determine the financial status of the company. The auditors also should report any problem that have rise to the shareholder about the company account without any fear.

An auditor could be a person from the accounts department who is trained in internal auditing. Their objective would be to determine the efficiency, adequacy and the effectiveness of the systems in place for internal control. They also review the reliability and integrity of management and ensures compliance with policies, procedures and laws. They help to safeguard the assets of the business. Internal auditors are in complete control of the organization's computer system, to guarantee the reliability and integrity of the data.

Computers are literally changing the nature of work of the auditors. With the aid of special software packages, accountants are required to submit all transactions in a specific format for financial analysis. These software packages greatly reduce the workload of auditors and now, auditors are performing more technical duties, such as controlling, implementing and developing technology plans and budgeting.

Due to the corporate world taking over the small business market, internal auditing is an excellent career option.

- Public Sector Audit Jobs- Internal Auditors are in great demand in the public sector, where contract jobs, as well as permanent positions are available. To find a job in the public sector, the best way to find a job is through recruitment firms.

- Audit Jobs in Financial Service Firms- If you are looking for a career in a financial service firm, the best thing to do is to look at options that provide you with a combination of services like insurance, financial management and assets management.

- Retail industry Audit Jobs- There is no shortage of work for auditors in the retail industry. From the smallest region to a large metro area, there is an increasing demand for professionals who can identify losses and audit finances.

- Risk Management Jobs- One of the fastest growing opportunities in the Audit and Finance industry is the risk management category. There is always a need for qualified people to assess, identify, monitor and report the risk factors and their effect on the business. Positions are usually found in financial services firms and the headquarters of large companies.

Most auditors work from private offices. Self-employed accountants work from home. Auditors travel frequently to perform audits at various branches of the employing firms. Most auditors work for a standard 40 hours a week, but many work longer hours, particularly if they are self-employed and have many clients.

Some auditors work as college or university faculty, while some are salaried accountants at private industries and even government offices. Internal Auditors must have a Bachelor's degree in accounting or a Master's degree in business administration, with a specialization in accounting. Many colleges also offer internship. People pursuing this career should have a flair for mathematics and a high standard of integrity.

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On the other hand, sufficiency of evidential matter relates to the quantity of evidence the auditors should obtain. As previously mentioned, there are no fast rules fixing the number of evidence the auditor should have. In this aspect, the auditor exercises professional judgment, taking in consideration the circumstances in the particular case and the cost of obtaining the evidence. The following principles may aid the auditor in determining the quantity of evidence he may gather:
1. The more competent the evidential matter, the less amount of evidence is needed to support his opinion. If the internal control on the processing of credit sales has been evaluated to be effective, from the time sales has been recognized to the eventual payment of the receivable, the auditor could put more confidence that the eventual recording of the transaction is likewise proper. The substantive testing needed for the Receivables and Sales accounts could be reduced to the minimum.
2. The more material a financial statement item is, the greater the need for competent evidence. The Salaries and Wages account normally gets more attention from the auditor than Representation or Office Supplies Expense because the former is usually the bulk of a company’s expenditure. Depending on the nature of the business, the ordinary and direct expenses related to the income-generating activity of the client are more material than the incidental costs of the business.
3. As the risk of material misstatement associated with a particular engagement increases, the more evidence the auditor gathers. If the auditors are engaged to determine if there is fraud involved, the accounting records may not be reliable at all. The risk involved will cause the auditors to assign different weights to various types of evidence than they otherwise would.
In evaluating the evidential matter, the auditor considers whether specific audit objectives have been achieved. These objectives are the backbone of the audit procedures the auditor would accomplish in order to have a reasonable basis for his opinion. In doing so, his mind set should be geared on the possibility that there may be material misstatements in the financial statements, and the audit procedures designed should be sufficient to determine such. Having considered relevant evidential matter, regardless of whether it corroborates or contradicts the assertions in the financial statement, the auditor should obtain first sufficient competent evidence before issuing an opinion.

Those words tend to make business owners very uncomfortable.
I think it has more to do with the AUDIT part of it.

If you have Liability or Workers compensation insurance you will eventually be contacted by an insurance auditor hired by the insurance company to conduct an audit.

An insurance audit is basically a “checking of the facts” about your business. When your policy was issued, your premium was based on your estimate of variable rating information, such as payroll or sales. An insurance audit is performed to determine what the actual premium should be based on your company's actual results.
This guarantees you have the proper amount of coverage in the event of an incident.

There are 3 types of audits and you may end up doing 1 type or all 3 over the course of your business life:

The first two types are basically the same, Phone or Mail-in.

Both of these types of audits consist of a form being sent to you for you to fill out with the pertinent information and then sending this information, and any verification sources, back to the auditor for processing and review.

In the case of a phone audit, the auditor generally requests an appt to go over the audit with you by phone. The auditor uses this call to clarify any items that require more detail.

The third type is the one that most people dread- The Physical audit.

This type requires you to set and confirm an appt for an auditor to come to your place of business or to your accountant’s office. The audit can take anywhere from 30 minutes to several hours depending on the size of your company, # of employees and how well you have prepared your books.

When scheduling the appointment, the auditor will provide you with a list of the documentation you will need to have ready for the audit.
Some items you may be asked to provide:

• Payroll records with overtime separated
• Job titles and descriptions
• Listing of corporate officers
• Subcontractor costs
• Subcontractor Certificates of Insurance
• Sales receipts
• Quarterly Federal and State filings
• Automobile information

The auditor then goes through all records and inputs the information into a software program (Auditors usually carry a laptop).

At this point you may be asked some questions. If you are unable to physically be at the audit be sure the person who is there can answer most, if not all, questions. Also be sure to provide a day and time the auditor can call you later to clarify any missing info.
Possible questions:

• In detail, what does your company do?
• Again in detail, what does each employee do?
• Commercial work or residential? Or both?
• What are your hours/days of operation?

When the auditor is done they should review the findings with you and may ask for you to sign a statement confirming they have done so.
Many auditors (if applicable) will advise you on how to better prepare for next year.
Once the auditor leaves the audit they will then re-review the information provided and double-check for spelling errors, etc. the audit is submitted for review and processing to your Insurance carrier. It can take anywhere from a few days to several weeks before you will find out the final results from your insurance company.

If you have questions during this waiting period, you should direct them ONLY to your insurance agent or broker. The auditor has no control or information about your audit once it is submitted for review.

Some helpful hints:
• Please remember, the auditor is an information gatherer only. They have no control over your account.
• They are just doing their job- be courteous and helpful
• Do not lie to the auditor- they may not catch it but someone down the line will and then you can be fined and/or canceled.
• If you repeatedly ignore appointment requests or continuously confirm, then cancel, appointments the auditor will be forced to file a Non-compliance report. In this case generally the insurance company will send you a premium bill that includes a hike of up to 30%.
Save everyone the time and irritation, just make and keep the appointment.


Don’t let the audit process stress you out. The auditor wants to make things as easy as possible for you as it makes their job easier as well.

Competence relates to the quality of evidence obtained, and is evaluated in terms of relevance and validity. The relevance of evidence should address and meet the audit objective being tested. Let us illustrate the audit of inventory to expound on this characteristic. The auditor should not only satisfy himself with the reconciliation of inventory amounts with the books of accounts with supporting documents such as purchase orders or delivery receipts. To test if the inventory is properly accounted, the auditor would first review the inventory-taking procedures then observe the actual counting to get first-hand evidence that the procedures are properly observed. Once satisfied, he could place a higher degree of reliance on the assertion that inventory is complete and properly valued.
The validity of evidence is dictated by the circumstances in which it is obtained amidst all the risks and factors that could influence such, and is more erratic in nature. The following general principles serve the auditor useful guides in ensuring the validity of the evidence gathered:
1. Evidence obtained from independent sources outside the client provides greater reliability than that secured solely within the company. This is so due to the fact that the client has no hand in the processing of these evidences. As such, bank statements are more reliable than the balances appearing in the cashbooks as much as billing statements from customers/clients are more reliable than vouchers or purchase orders.
2. Accounting records and other internally generated documents are more reliable if they are a product of an effective internal control. If the processing of cash receipts transactions employs the proper segregation of receipt and recording duties, the possibility of collusion or any form of irregularity will be minimized as there is an automatic check-and-balance control. The process will have to go through numerous personnel, which will ensure the correctness of the transaction.
3. Direct acquiring of evidence by the auditor himself is more persuasive than information obtained indirectly. This is the main reason why auditor uses the audit technique of confirmation in auditing receivables and loans where they sent a letter to the debtor or creditor to verify the amounts reflecting in the financial statements.
In addition to these generalizations, the competence of evidential matter is increased when the auditors are able to obtain additional information to support the original evidence. In testing the ownership of land declared in the financial statements, the auditors would naturally inspect its title. If they could secure a certification from the local government’s Assessor’s Office or Registry of Deeds that the said land was under the name of the client, the evidence gathered is more persuasive, perhaps convincing, rather than basing the evaluation on the title alone.

During 2005 and 2006, the American Institute of Certified Public Accountants issued several new standards to improve and clarify auditing standards in general.

There were two statements that were issued and became effective upon issuance:

Statement on Auditing Standards (SAS) Numbers 102 and 103.

SAS No.102, Defining Professional Requirements in Statement on Auditing Standards, clarifies steps in auditing standards that are “unconditional requirements” defined by works such as “must” and “is required to”; and steps that are “presumptively mandatory requirements” defined by words such as “should”.

SAS No. 103, Audit Documentation, provides guidance on audit documentation as an essential element of audit quality. This standard also gives guidance on the date of the audit report which cannot be earlier than the date on which the auditor has obtained sufficient appropriate audit evidence to support the opinion. As a result, the audit report date will need to be close to the date the reports are released

The American Institute of Certified Public Accountants also issued the Risk Assessment standard in March 2006. The project originated as a joint project with SAS No. 99, Consideration of Fraud in a Financial Statement Audit. These standards were issued because the Accounting Standards Board believes that they will strengthen auditing standards and provide a more in depth understanding of the entity and its environment, a more rigorous assessment of material misstatements and improved linkage between assessed risk and the nature, timing and extent of audit procedures performed.

The following standards are in the suite of SASs issued in connection with the Risk Assessment standards:

SAS No. 104 – Amendment to SAS No.1- Codification of Auditing Standards and Procedures

SAS No. 105 – Amendment to SAS No.95 – Generally Accepted Auditing Standards

SAS No. 106 – Audit Evidence

SAS No. 107 – Audit Risk and Materiality in Conducting and Audit

SAS No. 108 – Planning and Supervision

SAS No. 109 – Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement

SAS No. 110 – Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained

SAS No. 111- Amendment to SAS No. 39 - Audit Sampling

A greater understanding of the entity is required. Auditors are no longer able to assess control risk at maximum without a basis for that determination.

There are several steps auditors must take in applying the Risk Assessment Standards.

Gathering Information - The auditors must begin with gathering information about the entity and its environment, including its internal control. Information gathering should include at minimum information obtained from external factors; information about the nature of the client; information in connection with the objectives and strategies and related business risks of the client; information regarding the client’s measurement parameters including a review of the client’s financial performance; and information in connection with the client’s internal controls.

Understand the Entity - The auditor must also understand the entity and its environment, including its internal control. The auditor must anticipate and evaluate what could go wrong, and be able to synthesize the information gathered to determine how it might affect the financial statements. The auditor must also evaluate the design of the client’s controls and determine if those controls have been implemented (which is different than test of controls). In evaluating whether controls have been implemented, the auditor should determine if there is an awareness of the existence of the procedure in question and if the staff implementing the control have a working knowledge of how the procedure should be performed.

Assess Risk - The auditor must assess the risk of material misstatement by identifying risks throughout the process, relate the identified risks to what can go wrong at the relevant assertion level and consider whether the risks could result in a material misstatement to the financial statements. Once “significant risks” have been identified, the auditor can then design audit procedures accordingly.

Design Audit Procedures - The auditor should design overall responses and further audit procedures at both the financial statement level, and the relevant assertion level. In designing audit procedures, the auditor must provide and document a clear linkage between the assessment of the risk of material misstatement and the nature, timing and extent of the further audit procedures.