When I tell people I want to be an auditor or an accountant, the general reaction is, "Ewww! You must be really good at math." I can't say I blame them, because the general perception of accountants or auditors is exactly that. For auditors, most people think they're out to get you, especially those that work for the IRS.
First, and most quickly, we'll shatter the math misconception. You don't have to be a math whiz to be an accountant. If you can use a four function calculator (add, subtract, multiply, divide), you can do the math in accounting. No crazy calculus or wild formulas.
To understand the role of an auditor, you have to first understand that there are several types of auditors. I don't know this to be true, but I would venture to say the most popular types of auditors are either external or internal auditors. Other specializations are information systems auditors, governmental auditors, IRS auditors, etc... Because my education has focused on external auditing, that's what I'll discuss.
External auditors don't work for the company in which they are auditing, instead they work in small, mid-size, and large professional services firms. Companies hire these firms to perform services, such as audits. Why would a company willingly subject themselves to this? Well, if you're a public company (generally this means you sell stocks on an open exchange like the NYSE), you're required by law to have audited financial statements. Why is this mandated? Because believe it or not, some executives like to be greedy and can literally bring down companies by manipulation of the financial statements. Inflated earnings, understated debt, and/or too many assets on the balance sheet can all mislead shareholders into thinking the company is doing much better than it actually is. Thank goodness for auditors!
Private companies (local restaurants, Ma and Pap's Computer Shop, etc...) can elect to have audited financial statements. They would do this for several reasons such as applying for bank loans, plans to hold an initial public offering (going public), or just for the owner's comfort.
Now here's the fun part. How do auditors ensure that all is well in a company?
To ensure that financial statements are fairly stated, auditors test samples of transactions to see that they meet several different assertions. They're testing for accuracy, completeness, existence, authorization, cutoff, classification, and valuation. Auditors have different ways to perform those tests, and some assertions are tested more than others. If the auditor is satisfied that the assertions are met, he/she will issue an audit report stating that the financial statements are fairly stated.
If you're still awake, thanks so much for reading! I'll try not to be so mundane in the next posts! :)
Disclaimer: this post is by no means all-inclusive, what I'm writing is based off my education and experiences encountered through the recruiting processes of different firms.
