Tag Archives | auditor

External Audit Definition

See Also:
Audit Committee
Compliance Audit
Audit Scope
Forensic Audit
Maintenance Contract

External Audit Definition

An external audit, defined as a company audit which is performed by a party which is not a department or employed by business to be audited, are very commonly performed. The external audit approach has 2 main purposes: The company believes an outside party will be more efficient at the work or because a governmental entity, such as the IRS, is auditing the business.

External Audit Explanation

An external audit, explained also as a voluntary or non-voluntary audit performed by a 3rd party, is a necessary tool. It provides both business and government with a valuable check of company accounting. The internal and external audit differences effect the value of the audit in many ways. Generally, an external audit conflict of interest is less likely to happen than when an internal audit occurs.

2 Reasons for an External Audit

When contracted from the business controllers, the external audit process happens for 2 reasons. First, the company can receive more efficiency by using an external auditor. This could happen for many reasons: company employees are already occupied on other tasks, external auditors are better trained for the purpose, internal fraud may prevent an internal audit from being valuable, and more. In any event, the company will use an external auditing company to find the answer to certain questions about their accounting. The external audit plan by professional companies may be concerned with missing funds, providing a second opinion, or merely auditing the Accounting Cycle which a company follows.

Second, an external audit report may occur when a governmental entity questions part of the financial statements of a company. In this instance, an external audit will not be voluntary. The IRS or a court usually mandates it. There are many reasons why an external audit will occur under these situations: the IRS questions the financial statements of a company, the IRS may detect internal fraud, the company may not be creating GAAP compliant statements, a court authorizes the audit because they suspect funds may have been spent on illegal activities, and more. External audit fees are usually paid by the business being audited. The exception to this is that if they find illegal activity; then the business may be charged with the costs of the external audit.

External Audit Example

Dwayne owns a healthcare research company. His business, fueled by his years of experience in healthcare research, provides analysis of samples sent by doctors offices as well as hospitals. Dwayne knows the operations of his business left and right. Recently, Dwayne’s business has come under an IRS audit. The IRS suspects that he may be excluding some of their profits from the books to be in a lower tax bracket. Dwayne is afraid that the audit will expose problems which he is not responsible for.

After some time, Dwayne is acquitted of any wrong-doing. The auditor has found that this is not the case: his company temporarily took less profit due to the recent recession. Dwayne is relieved to hear this as he continues his work.

Dwayne made sure to comply with the auditors requests. The reason for this is two fold: he knew he was innocent and wanted to present a reputable picture to the IRS. In doing this he made his experience much more pleasant than it might have been.

Dwayne now appreciates the auditor because he was merely doing his job. Dwayne, the average patriotic American, respects the auditor as an accountant. He is glad to help in preventing fraud in even his own business.

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External audit definition

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Controller Definition

See also:
How to Develop a Controller
How to Hire a CFO Controller
Business Risk
Control Account
Term Loan
Separation Of Duties

Controller Definition

A company controller, defined as the lead auditor and accountant in a company, is an extremely powerful role. Company controllers are in charge with all important accounting measures: policy, procedures, changes, amendments, and leadership of all accounting employees. A company controller, business and nonprofit included, often has the title of CFO. The term controller or comptroller can be used interchangeably although comptroller often infers that the person is a government employee.

Controller Explanation

A controller, explained as the person who provides leadership to every aspect of accounting in a business, has many tasks. Controller duties are to make sure all accounting measures run smoothly and predictably.

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A controller of general accounts has many roles in a business. First, the controller organizes the entire accounting strategy for a company. This strategy is essential because it establishes methods such as fifo vs lifo, auditing schedules, overall financial reporting and analysis, and more. The controller position is, essentially, the “CEO” of the accounting that occurs for a business to keep track of operations.

Then, the controller in accounting creates policies that HR must abide by. Timing of expense and income entry, periods which events are reported in, and more. These policies are essential for quality reports.

The controller also decides all of the major accounting issues for a company. Is a certain expense worth the money? Should it be paid for now? All of these are decisions for the company controller.

Controller Example

For example, Danny is the accounting controller for a small business. As one of the most important officers in the business, Danny must create a way to make sense of all of the credits and debits which occur. He must make the tough accounting decisions that no one else is able to make.

Danny must decide, now, on whether an expense is worth the money. His company is considering a distribution center and must choose if opening it is the best option. He must turn this qualitative situation into quantifiable finances.

The plant will be quite expensive. Soon after beginning his analysis Danny comes to a realization; his company can have their product maker drop ship to the customer. With drop shipping, Danny’s company will never have to see the product. Rather than reshipping it, it will be packaged and reshipped by the manufacturer. Danny makes sure this is a good decision by performing a financial calculation.

His calculation finds that, despite the fees for a drop shipping account, his company will save money by using drop shipping through their manufacturer. This provides a simple and cost-saving solution. Danny makes his decision and waits for the kudos he has earned.

controller definition

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Compliance Audit

See Also:
Audit Scope
Charge Account
Managed Sales And Use Tax Audit Programs
How to Control Annual Audit Fees
Role of a Company Back Office
Planning Your Exit Strategy

Compliance Audit Definition

The compliance audit definition is an audit which serves the purpose of ensuring that a company meets the requirements of an outside governing body. It is commonplace in many industries. Any time a company has to meet licensing requirements for a governing body, either governmental or non-governmental, a compliance audit process occurs. This audit is done by either internal or external personnel.

Explanation

Compliance audits, explained as the method to meeting certification requirements placed upon a business, take place for a variety of purposes. In one instance, governments require compliance audits. These could be for health code, workplace safety, and more. Furthermore, the government requires certification to prove that a business meets the standards of operation it places. Compliance audit guidelines let the business know how it can best plan for this.

For non-governmental organizations, compliance audit solutions are equally as common. These serve the purpose of gaining certification through networking groups, industry groups, customer advocacy organizations, and more. As an example, the better business bureau has a certification process for qualified businesses. Furthermore, companies require a compliance audit methodology to be better business bureau certified.

Compliance Audit Example

For example, Don is the manager of a major chemical plant. This business, dealing closely with the major petroleum companies, has many requirements for operations.

Recently, Don’s business is due for workplace safety certification. This certification requires close scrutiny from government agents and therefore, it will not be easy to pass. To prepare for this, Don hires an outside consultant to perform a compliance audit. This audit will clearly spell out, through an after-audit report, how the plant must improve to meet governmental requirements. Included in the price is a compliance audit handbook with detailed instructions on the requirements of the license.

After Don’s compliance audit process, he is thrilled; his company has to make only a few inexpensive changes. Don is happy that his company protected profits by hiring a well trained expert for help. In conclusion, passing this test will lift a huge weight off of his shoulders.


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compliance audit
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Auditor

Auditor

In accounting, an auditor is a certified public accountant (CPA) who performs an objective examination of a company’s financial statements and internal controls. They evaluate the validity and reliability of the data and confirms whether the financial statements were prepared in accordance with the rules of GAAP. Furthermore, there are two types: an internal auditor and an external auditor. They summarize the results of the audit in an audit report, also called an accountant’s opinion.

Internal Auditor, External Auditor

There are two types of auditors: internal and external. An internal auditor is an employee of the audited company. Whereas, an external auditor is not an employee of the audited company.

Audit Report

An auditor summarizes the results of the audit in an audit report. Then, the audit report states the their opinion of the validity and reliability of the audited company’s financial statements and other relevant data. Include the audit report in the audited company’s annual report.

An accountant’s opinion may be qualified or unqualified. If the opinion is unqualified, then the auditor concluded that the data are valid and reliable and the financial statements were prepared in accordance with the rules of GAAP. If the opinion is qualified, then the auditor concluded that the data may not be valid or reliable and the financial statements may not have been prepared in accordance with the rules of GAAP. Furthermore, a qualified opinion often warrants further investigation of the audited company’s financial statements and accounting systems.

Audit Definition

In accounting, an audit refers to the objective evaluation of a company’s financial statements and internal controls. It checks the validity and reliability of the data. Then it confirms whether the company prepared its financial statements in accordance with GAAP.

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auditor, external auditor, internal auditor

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auditor, external auditor, internal auditor

See Also:
Audit Committee
How to Control Annual Audit Fees
Managed Sales and Use Tax Audit Programs
Future of the Accounting Workforce

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Audit Scope Example

Audit Scope Example

Ely is an auditor for the IRS. His work, some of the most technical for any forensic accountant, involves looking deeply into a company to find errors which may lead to prosecution. By doing this, Ely is preventing the company from any financial foul-ups that could lead to fraudulent information being shared. He is now tasked with finding the reason for recent tax payments.

The company Ely is auditing is a major food processing plant. This food company has had a history in the past of financial record “mistakes,” which explains the reason for the IRS being quick to investigate a discrepancy. This company, paying much less than IRS estimated taxes, may face a penalty. Thus the company sends Ely to see the reason for this discrepancy.

As Ely is working he takes on massive amounts of documents. He will have to sift through countless financial statements, as well as procedural documents in order to draw a conclusion on a large auditing matter. For this project he will have a very deep audit scope: he must find the reason through almost any means necessary. Because federal taxes are taken very seriously in the United States, Ely is given the authority by the IRS to request any documents or evidence that could make his decision making process run more smoothly in a legal way.

Ely Finds Something

As he is working, one of Ely’s assistants finds something; an account which should have more money than it does. With large company’s this is not uncommon because large sums of money must be moved and transferred at a moment’s notice in order to retain balance in the company’s ledgers. However, Ely is not completely convinced that unintentional error is the cause for the discrepancy. Ely scales deeper to find the cause: a company employee has been stealing funds. Though the company itself is proven to be fully compliant their records have been altered by this corrupt worker. Ely is able to help the company recover the funds and see that the employee pays for his crime. Each party is pleased with the audit, except for the employee who caused the problem.

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Audit Scope

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Audit Scope

Audit Scope Definition

Audit scope, defined as the amount of time and documents which are involved in an audit, is an important factor in all auditing. The audit scope, ultimately, establishes how deeply an audit is performed. It can range from simple to complete, including all company documentsAudit scope limitations can result from the different purposes listed below.

Audit Scope Meaning

Audit scope means the depth of an audit performed. Audits are performed for several purposes: regular “checkups” of company records, to check for internal errors, for the purpose of finding fraud inside a company, for the purpose of finding fraud in another company, or even for the purpose of finding tax income and other offenses against IRS law. Due to this fact, audit scope and objectives have a different meaning depending on the person performing the audit as well as the reason behind the audit.

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If the audit is being performed for regular internal processing, then the audit will generally only have a scope which includes the latest period which has passed. This occurs because the company has probably already audited the previous period.

If An Audit Reveals Fraud

If the audit is being performed to find fraud, however, it will generally have a deeper audit scope. It may include records from years or even decades ago. This is due to the fact that, at the very least, a violation of company policy occurred. Dedicated auditors, either company employees or hired auditors, spend their entire career in this. They often spend much more time and look far deeper in this process.

IRS auditors may even look at documents which were created during the birth of a company. This is because they are trying to find errors which result in increased income for the government as well as civil or criminal charges. A company will want to keep pristine records to assure that the auditor does not look deeper than the audit scope documents which a company can support.

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What is Audit Committee

What is Audit Committee? An audit committee is a subcommittee of a public company’s Board of Directors. A Board of Directors can have several subcommittees. The audit committee focuses on corporate governance, specifically, the company’s internal controls and financial accounting systems.

What is Audit Committee Membership?

A company’s audit committee typically includes a number of outside directors, or non-executive directors, preferably including individuals with financial accounting expertise.

What is Audit Committee Purpose?

An audit committee has several responsibilities. An audit committee is responsible for overseeing the company’s financial reporting as well as its financial accounting policies and procedures. The duties also include selecting and overseeing external auditors, ensuring regulatory compliance, monitoring the company’s internal controls, and overseeing risk management.

what is audit committee

See Also:
How to Control Annual Audit Fees
Managed Sales and Use Tax Audit Programs
Double Entry Bookkeeping
Direct Method Allocation
Company Life Cycle

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