Independent Auditor

What Is An Independent Auditor?

An independent auditor is an accounting professional, specifically a certified public accountant (CPA) or chartered accountant (CA), who audits a firm's financial statements and business transactions that are unrelated to them. The most important thing they deliver to their client is the audited financial statements and report. 

Many large corporations work with the same auditor for years, developing close bonds. However, businesses are free to switch to other independent auditors. For instance, KPMG has examined GE's financial reports and statements from 1909 until 2020. However, due to accounting issues that KPMG was unable to stop and other factors, GE has chosen Deloitte to serve as its independent auditor for 2021.

• An independent auditor is a certified public accountant, a chartered accountant from a public accounting firm, or a self-employed person who is not in any way connected to their audit client.
• They perform an important role in the financial reporting ecosystem because they give financial statements credibility and reassure shareholders that the accounts are accurate and fair.  
• Examination of financial statements, review of other relevant data, and the guarantee provided by an independent auditor reduces the likelihood that a corporation may give other parties, particularly investors, materially incorrect information.

Independent Auditor Explained

Independent auditors are entities independent from their clients. They are not in any way connected to the clients they will audit. They should be objective, impartial, and skilled professionals. They are either self-employed or work for public accounting firms with no emotional or financial attachment to the business they audit. They are frequently used for audits to clarify and prevent conflicts of interest.

In the business sector, assessing the service of independent auditors is a frequent practice. Their services assist in preventing financial crime. Auditors find unethical corporate activities and alert the appropriate authorities to them. Furthermore, it reassures the stakeholders that the economic profit portrayed by the company is true and accurate. 

They primarily ensure that corporations follow accounting rules and tax regulations and identify those who don't. Examining financial records, statements, and any other relevant information that could affect a company's assets is one of the primary duties of an auditor. Additionally, they examine corporate systems and operations and could suggest enhancing business procedures to boost productivity. Another important function is calculating the tax liability and ensuring compliance with tax laws and regulations.

After reviewing the client's financial records and other events associated with the company, the auditor compiles his audit opinion in a report outlining the accuracy and validity level of the client's financial statements and other information. The independent auditor's report can be a modified or an unmodified report. The report is issued to those in need of knowing and in a position to check the report and verify that corrective actions are taken.

Roles And Responsibilities

There are various roles and responsibilities of the independent auditor; let's look into some of them: 

• First, they must remain independent of their audit clients.
• They have to adhere to high-quality audits by following and performing rigorous independence, quality control, and auditing standards under the supervision of an effective audit committee.
• The auditor must prepare and carry out the audit to get a reasonable assurance regarding the absence of misstatement brought on by fraud or error. 
• Every auditor is responsible for requesting access to the company's books of accounts, vouchers, and other information and justification. Additionally, an auditor may immediately request information about whether the corporation has appropriately secured the loans and advances. Further, they can determine if the terms and conditions used to get such loans and advances are reasonable. If the company's transactions, which are recorded in the books, genuinely occurred and were not unfair to it.
• Another auditor's responsibility is compiling a report on the accounts and financial statements he has reviewed and submitting it to the company's shareholders. Such an opinion of the auditor increases the trustworthiness of the financial reports. It is because it gives the stakeholders reasonable comfort that the financial statements accurately reflect the company's financial situation.
• Confidentiality is one of the fundamental principles that guide an audit. As a result, the auditor must maintain the secrecy of any information they obtain while carrying out his obligations. They shouldn't share the client's information without the client's consent. The auditor must also be truthful, sincere, objective, and free from bias. 

Importance

The independent auditor's importance is as follows: 

• First, they play an important role in the financial reporting ecosystem.
• They help companies release audited financial statements.
• Audited companies' costs of debt seem to be lower than those of unaudited companies. In addition, audit reports are important in giving financial statements credibility and reassuring shareholders that the accounts are accurate and fair. In other words, a certification offered by an independent auditor lowers the chance that a business presents external parties, particularly investors, with substantially wrong information by making it easier to disseminate accurate and transparent financial information.
• They can provide important insight about the company. A company's internal systems and internal controls may also benefit from enhancement following it. The auditing team also determines if the different departments keep accurate records of all transactions. 

Frequently Asked Questions (FAQs)

Recommended Articles

This has been a guide to what is Independent Auditor. We explain the topic in detail with its roles, responsibilities, and importance. You can learn more about it from the following articles –

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