What auditors do
If your business is facing an audit – particularly if it’s for the first time – you may be wondering, “What does an auditor do?”
It’s a good question to ask. When you know exactly what an auditor does (and doesn’t) do, it helps you to get more from the audit process.
In this article, we show you what auditors do, the skills they bring to the table, and the ways in which they can help you. We also give you some helpful tips on choosing the right auditor for your business.
What is an auditor?
Confusingly, there are many different types of auditor out there. The type you need depends on what you to want to audit. For example, your company might want to ‘audit’ anything from its IT systems and data security through to its employee performance or environmental impact.
However, when most people think of an auditor, they normally mean an external, financial auditor. These are people who audit a company’s financial statements. They will normally conduct statutory audits (the ones the law says you must have). Sometimes they’ll also undertake voluntary audits (the ones you need for other reasons, such as the sale of your business).
In this article, we look exclusively at what financial auditors do.
Why are auditors important?
Auditors are important because many businesses can’t do without them!
When a business gets to a certain size, the law says it must have an annual statutory audit. Some other companies must also be audited, such as those whose articles of association mandate it (find out more about which companies need to be audited).
This means auditors are important to help companies comply with the law. If you don’t undertake a statutory audit when you are required to, you can face penalties and even prosecution. You also risk seeing your company being struck off the Companies House register.
Auditors are also important in other ways. Some companies need to arrange voluntary audits for various reasons. For example, some lenders will require an audit before they release funds. Audits are also extremely useful if you are planning to sell a business – they reassure potential buyers that your finances are sound.
A good auditor will also benefit your business. When they examine your financial records, they may be able to recommend ways of mitigating risk and improving internal controls, as well as giving you insights that lead to better strategic decision making.
What qualifications does an auditor need?
Any business offering statutory audit services needs to be registered with a recognised supervisory body. In England and Wales, this means the company must be registered with the Institute of Chartered Accountants in England & Wales (ICAEW) or the Association of Chartered Certified Accountants (ACCA). The business must also be on the Register of Statutory Auditors.
Individual auditors also need qualifications. Principally, they need an Audit Qualification, which demonstrates they have sufficient knowledge and experience to undertake audits. In addition, only auditors who have Responsible Individual (RI) status can sign statutory audit reports. RIs must also have a Practising Certificate.
Is an auditor the same as an accountant?
In the UK, an auditor is an accountant with specialist audit qualifications and skills. As accountants, they can also do non-audit accountancy work. This might include working on tax returns, undertaking financial due diligence or providing tax planning services. As in many professions, accountants have different specialisms. What auditors do, as you’ve seen, is highly regulated.
What is the main role of the auditor?
The main role of the auditor is to independently examine an organisation’s financial records. They do this to make sure the records comply with relevant laws and accounting standards. A successful audit gives businesses reasonable assurance that their records are free from material misstatement. If an auditor is a Responsible Individual (RI) a key part of their role is signing the audit report.
What skills do auditors need?
A good auditor needs a variety of skills. Obviously, they need to be good with numbers otherwise they wouldn’t have qualified as an accountant and as an auditor! In addition, they need strong analytical skills in order to interpret financial data. They need to be highly organised team players to ensure that audits are efficient and don’t take longer than necessary. Auditors also need to be objective and have integrity – it’s essential that an audit is an independent, fair assessment of an organisation’s financial records. Finally, the best auditors have excellent communication skills. Efficient communication with a client helps avoid misunderstandings, speeds up the audit and helps ensure a company gets maximum benefit from the process.
How does auditing work?
If you want a detailed view of how auditing works, we recommend you read our article Understanding the purpose of an audit. However, to help you understand what auditors do, we’ve provided a brief summary of how auditing works below.
What happens in an audit?
We’ve already seen that the main purpose of an audit is the independent examination of a company’s financial records. The audit is normally conducted by a team of qualified auditors. The size of the team depends on the complexity of the audit. THP audits are always led by a Responsible Individual, who is also a member of our board of directors. The audit process has three main stages
Stage 1
Planning the audit
This is where auditors work with you to agree the scope of the audit, particularly identifying areas of potential risk. This planning stage results in a proposed schedule of work, designed to make the audit as efficient and possible.
Stage 2
Audit fieldwork
This is the stage where auditors take a deep dive into your financial statements, checking that they are compliant, that adequate internal controls are in place, and that there is a low risk of mistakes or fraud.
Stage 3
Audit completion stage
This is when the audit team presents its findings in a report. This will inform you of any issues the auditors have uncovered, such as financial misstatements or non-compliance with legal or regulatory requirements. The auditors will also give an audit opinion. This is normally an unqualified opinion that your financial records give a fair and accurate view. Sometimes this opinion is qualified (there are some issues with your records), adverse (your records don’t accurately reflect your position) or a disclaimer (there’s not enough evidence to form an opinion). Fortunately the latter two opinions are rare.
Can auditors refuse to audit a company?
Yes, auditors can refuse to audit a company. That said, there are usually very good reasons. For example, an auditor should refuse to audit a company to which it provides non-audit services if that would threaten their independence as auditors. Similarly, an auditor shouldn’t audit any company from which they derive an unduly large part of their income, regardless of the type of work provided.
Auditors may also refuse to audit a firm if they think the risk of material misstatement is high or suspect the company is involved in unethical or illegal behaviour. Similarly, if a company doesn’t co-operate with the auditor, they may refuse to proceed with the audit. More mundanely, an auditor may refuse to audit a company if they don’t have the time or resources to do so.
Who signs the audit report if the auditor disagrees with it?
This is a common question, but in reality this situation doesn’t occur. Every audit report is compiled independently by the auditors themselves, so they won’t disagree with what they’ve written themselves! However, it’s worth remembering that auditors will still sign a report if they have a qualified or adverse opinion of a firm’s financial records, or they issue a disclaimer of opinion. It’s just that the report will make it clear why they have that opinion.
How do I become an auditor?
We’ve already looked at the qualifications an auditor needs. However, if you would like to become an auditor yourself, the first step is to become a qualified accountant. This page is helpful if you are thinking of auditing as a career. If you are already a qualified accountant or auditor, you may want to keep an eye out for audit vacancies on our jobs page.
How to choose an auditor
Not all auditors are the same, so it’s important to know how to choose an auditor. Understandably, huge corporations tend to choose the largest auditing firms because they have the capacity to undertake audits on multibillion pound financial records.
However, if you are a medium sized limited company, it’s wise to look around to see what different auditors do and what they offer. At THP, for example, we pride ourselves of offering exceptional audit services that are conducted in a friendly, efficient manner. If you’d like to learn more, head to our audit services page.
What does an auditor do? Lots!
If you came here wondering “What does an auditor do?” we hope you now have a clearer understanding. In a nutshell, auditors help companies comply with statutory audit regulations or they provide voluntary audit services for a variety of helpful reasons. Their work is designed to give you confidence that your financial statements are a fair reflection and likely to be free from misstatement. However, while what auditors do on a daily basis is similar regardless of who they work for, some audit firms are simply more pleasant than others to work with. We like to think we’re one of them! If you’d like to learn more about what our audit team can do for you, please get in touch today.
