What does an auditor do?

An independent auditor will inspect the financial reports of a company or organisation. Their job is to form a view on the validity of the reports and communicate this to the organisation. They do this by conducting an Audit.

A good auditor, however, may provide more than just compliance with statutory audit obligations. In this guide, we will outline the activities of an independent auditor and the other ways they may impact your business.

An auditor will examine a company's financial records

First and foremost, an auditor examines the financial records, relevant documents, and certain assets or items of the company or organisation. The list of things an audit will examine may include, but is not limited to:

• Financial statements
• Tax returns
• Accounting systems
• Cashflow workings

A good auditor goes beyond simply gathering information during an audit; they will offer meaningful advice to the company based on their findings.

These recommendations can involve advice like cost reduction, waste minimisation, and profit enhancement strategies. Additionally, they can help to improve processes or and controls, such as managing access rights and ensuring compliance with regulations beyond the statutory audit requirements.

An auditor will make a judgment on the assumptions made by management of an organisation

An auditor aims to provide assurance that a company’s financial records present a true representation of its activities. It sheds light on any issues and advises senior management on how to address them.

Assumptions are made by senior management when preparing financial reports, such as calculating stock provisions and writing off bad debts. An independent auditor will examine and make judgments on the reports in the context of these assumptions.

The audit can fail if an auditor issues an incorrect opinion on the organisation's financial statements, so it is very important to choose a qualified and reputable independent auditor to ensure everything goes smoothly.

What else can an auditor do for a company?

A statutory audit is the primary service provided by an auditor. They will examine the company's financial statements to determine if they are presented fairly in accordance with applicable accounting standards. However, auditors can help companies in other ways, including:

• Reviewing financial statements and internal controls
• Investigating financial irregularities to identify error and potential fraud
• Consulting services relating to accounting, finance, tax, and risk management
• Providing tax planning and compliance advice
• Conduct due diligence to assess financial and operational risks associated with potential acquisitions or investments

Why do you need an independent auditor?

An auditor must be an independent figure when auditing a company’s records and accounting practices.

The credibility of an Audit is based on the independence of the auditor. It removes conflicts of interest or internal influences/pressures. An Audit must be an unbiased and objective professional assessment.

There should be a positive relationship between the auditor and the company, but the auditor should still rigorously challenge the numbers.

• Read more: What is an Audit and why is it so important?

What questions will an auditor ask?

Conversations will take place between an organisation and its auditor throughout the Audit cycle. This will include questioning different members of the organisation (not necessarily just the finance team) to determine if a company’s financial records are an accurate representation of the company’s actual position.

Before the Audit takes place, the auditor will aim to understand the company and its objectives. Questions may therefore include:

• How is the business currently trading? Are there any factors affecting this?
• Who are the key / fundamental individuals?
• What are your biggest priorities or challenges as a business?
• What are your current areas of concern, if any?

When conducting the Audit, these questions will become more specific. They may query specific transactions in an attempt to resolve inconsistencies or more general areas, such as processes and controls, in order to evaluate risks and adherence to regulations.

A good auditor will avoid a scattergun approach. This can result in a high volume of questions about things that aren’t important. They should instead focus on the key risk areas.

How does an auditor assess internal processes and controls?

An auditor will look at the internal processes and controls used by the organisation. This may involve visiting the premises and observing some of these processes.

This helps them identify any processes that aren’t working and recommend improvements.

These may include financial recommendations such as reducing costs, cutting waste, and improving profits – but could also include process or control recommendations, such as segregation of duties, access rights, and compliance with regulations.

Does an auditor communicate with the company?

One of the most important duties of an auditor is to communicate their findings, observations, and recommendations clearly and efficiently.

An Audit may involve lots of information and detail, of which some may not be relevant other than for compliance purposes.

The auditor will ensure all client communications are as easy to understand and delivered in a timely manner. This includes both the principal audit findings, as well as the various touch points throughout the Audit process.

The Shorts Audit Promise

At Shorts, we believe a business and its auditor should have a long-term partnership built on trust, support, and collaboration.

An independent auditor should have a genuine interest in what a client business does, and what its plans are for the future. They should invest their time and knowledge toward helping the organisation achieve those goals.

The Shorts Audit Promise is built around seven key principles. These summarise how we believe an Audit should be and, indeed, how every one of our audit engagements is managed.

• Learn More: The Shorts Audit Promise