A Glance at Internal and External Auditors

There are many career opportunities available for college students graduating with a degree in accounting. Among these include tax services, fraud accounting, private accounting and auditing. Auditing is one of the largest areas of the accounting profession. It is actually the only section of the four part CPA exam that is its own section. As with many fields of work auditing can be separated into two groups. Professional auditors may either work as internal or external auditors. Auditors evaluate organizations to assess the internal controls. The roles and responsibilities of internal and external auditors are different, but they have their similarities as well. The career opportunities for both fields are vast, challenging and rewarding.

RESPONSIBILITIES AND ROLES

All auditors, whether they are internal or external, must adhere to a professional code of ethics and many of the professionals hold licenses such as a Certified Public Accountant (CPA), Certified Information Systems Auditor (CISA), Certified Internal Auditor (CIA), Certified Fraud Examiner (CFE) or Certified Management Accountant (CMA). Both internal and external auditors must follow Generally Accepted Auditing Standards (GAAS). These standards are separated into general standards, standards of field work, and standards of reporting. Under these standards it is important that auditors have technical training pertaining to the work and maintain independence. Independence is important because all auditors, including internal, must be unbiased in their decision making and opinions. Along with professional care and professional standards there are other similarities between internal and external auditors. Both sectors analyze and document information pertaining to the organization. Even though the information they process and analyze may be different, many of the procedures are similar. Collecting, analyzing, and reporting data of an organization is the main similarity between the two fields. Whether it is internal or external, collecting and analyzing information helps the organization operate more effectively. Through this similarity, both internal and external auditors are critical to an organizations success.

INTERNAL AUDITORS

The main difference between internal and external auditors is who they work for and the types of information they process and analyze. Internal auditors work internally for a certain company and usually report to upper management and the board of directors. Even though they work for a specific company they still maintain their independence as auditors. There are many different roles and responsibilities for internal auditors which include risk assessment and internal control evaluation. External auditors assess the financial and internal control while internal auditors add more assessment to the organization they work for. The Institute of Internal Auditors (IIA) says that internal auditing is

“An independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes” (IIA).

Improvements may be financial but there are also other improvements internal auditors will assess. For instance, a particular internal auditor may work for a retail clothing store chain. He or she could be assigned to a certain district to assess the controls and loss prevention for each individual store within the district. Among their other duties the internal auditor will physically evaluate each store periodically. The internal auditor will assess the store based on the company’s policies and procedures to make sure the risk and inventory loss is low. Without the internal auditor the company would not be able to evaluate the loss prevention. Because of the internal auditor the company can operate more effectively. Internal auditors will give suggestions and recommendations to management and the board of directors on how the company can operate better. Since the internal auditor is working for one particular company it is a broader sense of assessing control. Again, it is not limited to auditing financial statements and internal controls related to financial statements. There is a continuing assessment of controls because the internal auditor is working solely for one company. It is not an engagement as with external auditors.

EXTERNAL AUDITORS

External auditors are not employed to evaluate one specific organization’s financial statements and internal controls. External auditors are employed by an accounting firm to evaluate the financial statements and internal controls of a wide range of companies in many different industries. Again, independence is important because there can be no affiliation between an external auditor and the client he or she is engaged with. Also, external auditors are different in that they provide an official opinion on the company’s financial statements whether is be a privately held or publicly held organization. External auditors can issue four different types of opinions pertaining to their assessment of a company’s financial statements and internal controls. The four different opinions are unqualified, qualified, adverse, and disclaimer of opinions. The unqualified opinion states that the auditor found that the financial statements of the organization where presented fairly in accordance with Generally Accepted Accounting Principles (GAAP). A qualified opinion expresses that the financial statements present fairly with one or more material exceptions. An adverse opinion states that the financial statements of the company do not present fairly with GAAP. A disclaimer of opinion says that the auditors were not able to express an opinion on the financial statement of the organization. An example of a disclaimer of opinion would be if the external auditor could not take a physical count of a material amount of inventory and there was not an alternative procedure available. Most external auditors are CPAs and may hold other licenses as well. External auditors perform varying tests on a company’s financial statements and internal controls. Tests can include cash, cash disbursements, prepaid expenses and plant property and equipment among others. Taking a physical inventory for a company is also a test for an external auditor. External auditors may not always perform an actual audit. Agreed upon procedures, reviews, and compilations are other types of work for CPA firms. Auditors may also audit a certain section of a company such as pension plans and 401k plans. Also, external auditors may audit the information that the internal audit team has gathered over the course of the business year. External auditors have a more narrow approach than internal auditors because they can focus on certain areas of a company.

CAREER OPPORTUNITIES

Accounting majors have a plethora of career opportunities at their feet once they graduate college. One can enter auditing and decide if they want to be an internal or external auditor. As mentioned before, internal auditors work for one company. Depending on the size of the company the internal auditor may work with a small or large team of other auditors to assess the company’s controls. As an internal auditor it is important to pass the CIA exam to become qualified. Once passed, many doors will open for his or her career.

External auditors have the opportunity to work with different types of firms. An external auditor can work for a national, regional or local audit firm. Auditing and assurance is the largest sector of revenue for the four national accounting firms. Auditors for the big four may have an opportunity work in assurance which deals with the credibility of information. The big four audit many large publicly traded companies across the United States and internationally. Regional firms audit mostly publicly and privately held companies within their region but may also audit national firms and occasionally international firms. Local firms audit small, usually privately held companies. Auditors may also work in two other areas of the field. These career opportunities are governmental and regulatory auditors. Governmental auditors are considered to be internal auditors for the government. Regulatory auditors work for the internal revenue service (IRS). The auditors can be considered external auditors because they review tax payer’s income tax returns to verify that it is in accordance with the internal revenue code. If a taxpayer’s return is not in accordance with the internal revenue code, the tax payer will be audited by the IRS.

CONCLUSION

In conclusion, Internal and external auditors have similarities in that they both gather information and analyze the information to come to an opinion on an organization. Both internal and external auditors must adhere to a professional code of ethics and remain independent. It is also crucial to hold a license such as the CIA or CPA license. Internal auditors work for a specific company and audit all aspects of the company while external auditors engage with many different organizations and audit financial statements and internal controls. External auditors prepare and put together reports that will hold one of four opinions. External and internal auditors have many career opportunities at their disposal. It depends of the professional as to which field he or she is interested in working in.