What are the roles, duties, and responsibilities of the independent auditor?

Answer 1

Regulatory bodies generally require firms whose securities trade publicly (for example, common shares) to obtain an audit of their financial reports by an independent external auditor. Even if the securities do not trade publicly, financing sources such as banks may require that the firm obtain an independent audit of its financial statements.

An audit involves:

1 . An assessment of the capability of a firm's accounting system to accumulate, measure, and synthesize transactional data properly.
2 . An assessment of the operational effectiveness of this accounting system.
3 . A determination of whether the financial report complies with the requirements of the applicable authoritative guidance.

The auditor obtains evidence for the first assessment by studying the procedures and internal controls built into the accounting system. The auditor obtains evidence for the second assessment by examining a sample of actual transactions. The auditor obtains evidence for the third determination through a combination of audit procedures. The auditor's conclusions appear in the audit opinion, part of the financial report. In addition, for most firms whose shares trade in the United States, the Sarbanes-Oxley Act requires that the audit involve an assessment, by the independent auditor, of the effectiveness of a firm's internal control system for financial reporting. The auditor provides a separate report on internal control effectiveness.