TYPES OF AUDITORS
Several types of auditors are in practice today. The most common are certified
public accounting firms, government accountability office auditors, internal revenue
agents, and internal auditors.
Certified public accounting firms are responsible for auditing the historical
financial statements of all publicly traded companies, most other reasonably large
companies, and many smaller companies and noncommercial organizations. Because
of the widespread use of audited financial statements in the U.S. economy, as well as
businesspersons’ and other users’ familiarity with these statements, it is common to use
the terms auditor and CPA firm synonymously, even though several different types of
auditors exist. The title certified public accounting firm reflects the fact that auditors who
express audit opinions on financial statements must be licensed as CPAs. CPA firms are
often called external auditors or independent auditors to distinguish them from internal
auditors.
A government accountability office auditor is an auditor working for the U.S.
Government Accountability Office (GAO), a nonpartisan agency in the legislative branch
of the federal government. Headed by the Comptroller General, the GAO reports to and
is responsible solely to Congress.
The GAO’s primary responsibility is to perform the audit function for Congress, and
it has many of the same audit responsibilities as a CPA firm. The GAO audits much of the
financial information prepared by various federal government agencies before it is
submitted to Congress. Because the authority for expenditures and receipts of
governmental agencies is defined by law, there is considerable emphasis on compliance
in these audits.
An increasing portion of the GAO’s audit efforts are devoted to evaluating the
operational efficiency and effectiveness of various federal programs. Also, because of
the immense size of many federal agencies and the similarity of their operations, the GAO
has made significant advances in developing better methods of auditing through the
widespread use of highly sophisticated statistical sampling and computer risk
assessment techniques.
In many states, experience as a GAO auditor fulfills the experience requirement for
becoming a CPA. In those states, if an individual passes the CPA examination and fulfills
the experience stipulations by becoming a GAO auditor, he or she may then obtain a CPA
certificate.
As a result of their great responsibility for auditing the expenditures of the federal
government, their use of advanced auditing concepts, their eligibility to be CPAs, and
their opportunities for performing operational audits, GAO auditors are highly regarded in
the auditing profession.
The IRS, under the direction of the Commissioner of Internal Revenue, is
responsible for enforcing the federal tax laws as they have been defined by Congress and
interpreted by the courts. A major responsibility of the IRS is to audit taxpayers’ returns
to determine whether they have complied with the tax laws. These audits are solely
compliance audits. The auditors who perform these examinations are called internal
revenue agents.
It might seem that the audit of returns for compliance with the federal tax laws is a
simple and straightforward problem, but nothing is farther from the truth. Tax laws are
highly complicated, and there are hundreds of volumes of interpretations. The tax returns
being audited vary from the simple returns of individuals who work for only one employer
and take the standard tax deduction to the highly complex returns of multinational
corporations. Taxation problems may involve individual income taxes, gift taxes, estate
taxes, corporate taxes, trusts, and so on. An auditor involved in any of these areas must
have considerable tax knowledge and auditing skills to conduct effective audits.
Internal auditors are employed by all types of organizations to audit for
management with oversight by the board of directors, much as the GAO does for
Congress. Internal auditors’ responsibilities vary considerably, depending on the
employer. Some internal audit staffs consist of only one or two employees doing routine
compliance auditing. Other internal audit staffs may have more than 100 employees who
have diverse responsibilities, including many outside the accounting area. Many internal
auditors are involved in operational auditing or have expertise in evaluating computer
systems.
To maintain independence from other business functions, the internal audit group
typically reports directly to the president, another high executive officer, or the audit
committee of the board of directors. However, internal auditors cannot be entirely
independent of the entity as long as an employer–employee relationship exists. Users
from outside the entity are unlikely to want to rely on information verified solely by internal
auditors because of their lack of independence. This lack of independence is the major
difference between internal auditors and CPA firms.
In many states, internal audit experience can be used to fulfill the experience
requirement for becoming a CPA. Many internal auditors pursue certification as a
certified internal auditor (CIA), and some internal auditors pursue both the CPA and CIA
designations.
