Discuss the role of an Auditor (both internal and external).
Solution
An auditor, simply put, is someone who audits, or vouches for the authenticity, correctness,
completeness, accuracy and disclosure requirements in the financial statements of an entity.
An internal auditor is someone who is either appointed in-house or through an external agency
for checking up the daily working transactions of an entity. He does his checking to the nitty-
gritty details, going from scratch to conclusion. An internal auditor is more concerned with
documentation lacunae, system and process checks, and documentation completeness. The flaws
or shortcomings noticed by him are brought to the notice of the management on a regular
interval, say monthly or quarterly.
An external auditor is appointed either through a thrid party agency, or on the recommendation
of the shareholders/directors, and does the statutory audit of a Company, which involves
checking the correctness and accuracy of its financial statements for a particular financial year,
and presenting the same before the Board of Directors as well as Shareholders. A major part of
the external auditor\'s work relies on sample vouching and checking, whereby by selecting a
particular sample of transactions in each area of operations, they can convince themselves of the
correctness and completeness of the transactions booked. Further, he also ensures that the
financial statements are in line with the reporting requirements as per the latest applicable
Corporate Laws.
The main point of distinction between an Internal Auditor and External Auditor lies in the fact
that although both of them point out lacunae or issues in the system or scale of operations, for an
internal auditor ,the responsiblity also involves ensuring that the lacunae are corrected
immediately, and the statutory audit is conducted smoothly. Whereas, the issues as pointed out
by an external auditor are put before the Board of Directors for discussion, and only after getting
approved, are they implemented in either the current period financial statements (if they have a
material impact on the financials), or in the forthcoming years\' financial accounts..
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Discuss the role of an Auditor (both internal and external).Solu.pdf
1. Discuss the role of an Auditor (both internal and external).
Solution
An auditor, simply put, is someone who audits, or vouches for the authenticity, correctness,
completeness, accuracy and disclosure requirements in the financial statements of an entity.
An internal auditor is someone who is either appointed in-house or through an external agency
for checking up the daily working transactions of an entity. He does his checking to the nitty-
gritty details, going from scratch to conclusion. An internal auditor is more concerned with
documentation lacunae, system and process checks, and documentation completeness. The flaws
or shortcomings noticed by him are brought to the notice of the management on a regular
interval, say monthly or quarterly.
An external auditor is appointed either through a thrid party agency, or on the recommendation
of the shareholders/directors, and does the statutory audit of a Company, which involves
checking the correctness and accuracy of its financial statements for a particular financial year,
and presenting the same before the Board of Directors as well as Shareholders. A major part of
the external auditor's work relies on sample vouching and checking, whereby by selecting a
particular sample of transactions in each area of operations, they can convince themselves of the
correctness and completeness of the transactions booked. Further, he also ensures that the
financial statements are in line with the reporting requirements as per the latest applicable
Corporate Laws.
The main point of distinction between an Internal Auditor and External Auditor lies in the fact
that although both of them point out lacunae or issues in the system or scale of operations, for an
internal auditor ,the responsiblity also involves ensuring that the lacunae are corrected
immediately, and the statutory audit is conducted smoothly. Whereas, the issues as pointed out
by an external auditor are put before the Board of Directors for discussion, and only after getting
approved, are they implemented in either the current period financial statements (if they have a
material impact on the financials), or in the forthcoming years' financial accounts.
