External vs Internal auditors | What is an auditor and why do I need one?

External vs Internal auditors | What is an auditor and why do I need one?

When I introduce myself as an auditor to new people it is always interesting to watch the reactions. Reactions usually range from good to bad, but most of the time people will just say ‘wow, so you’re a smart cookie” or something similar and then swiftly move the conversation along.

I can almost guarantee, as well, that if we are at a restaurant or coffee shop I will be the one that the bill is passed to at the end of the night because I am an auditor/ accountant, so I must be good at math.While I’ve kind of become accustomed to these reactions this does indicate an important problem in our society in South Africa, and the world, today.

People don’t really know what an auditor/ accountant is, why we exist and why they actually need us in their businesses. This article aims to shed a bit of light on this topic in order to answer the question: what is an auditor and do I need one?Okay, so first of all, auditors are people too…lol. Okay no. Let me start at the beginning. So in ancient times rich and often noble folk would have money that they would give to certain servants.

The servants had to perform the task of looking after this money, investing it in something and then reporting on the returns that it is yielding. The servant would then periodically report back to the master on what he has done with the money. The master would listen to this account of what had happened and judge whether or not the servant was telling the truth or not.

The act of listening to this account and then judging whether or not it is true is called “audire” in latin. And this is where auditing started. Fast forward a couple of years and the auditing profession has evolved into a community of professionals who are trained to still do the same thing: listen to management’s account of what happened during a financial year, look at the “accounts” for the year and then judge and give an opinion on whether or not this is true.

And that is all an audit really is. Auditors perform certain procedures, based on enquiry from management, inspecting of supporting documentation, recalculating, reconciling & observing in order to be able to give assurance to third parties regarding the validity, accuracy & completeness of a set of financial statements for a certain year.You can also hire an auditor for more specific tasks.

For example, if a new law has been issued recently (such as the new Sectional Title Management Act & Regulations that became effective in October 2016) and you are worried about complying with this law you could hire an auditor to perform a compliance audit. If you are buying a company and you are not sure whether or not the company is really worth what you’ve agreed to pay for it you can hire an auditor to perform a due diligence audit, which means they will look into the company’s operations and affairs and give you their opinion on the value of the company and the accuracy of the financial statements. Banks and other financial institutions require audited financial statements, because then atleast they have another trained independent professional opinion on which they can rely in order to consider whether their credit is still safe with your business or not. And the list goes on.  Infact, the audit profession was so successful that another stream of auditing has been developed called internal auditing.

Internal auditors

Internal auditors provide basically the same assurance as external auditors, but they are not independent, because they are employed by the entity for which they perform their audit work. They get certain tasks & charters from management and their whole job revolves around checking whether or not the other employees in the organization are doing their jobs. Ofcourse, many people, including me (in the beginning), don’t like being checked up on, reviewed and asked questions in order to point out errors made and areas for development.

This is why many people have a negative perception of the word “auditor”. They think it is someone that has been hired in order to nail you. A person that has been put on this planet to point out your mistakes, make you look bad and just generally give you a hard time. And I must say, even for me, It is only after my first year in corporate that I started appreciating the value of audit.

These days I ask colleagues to please provide a second opinion, perform a review, do a second calculation on my work. Just in case. I’ve come to value the actions that I once resented. This is because I now understand that these people are not out to get me. They are trying their best to find my mistakes so that SARS isn’t the first to find it! At least if they find it first we can do something to correct the mistakes.

If SARS finds the mistakes first however; that is it – game over. Lol. Same with the bank, same with any other third party that relies on the work that you do. I can sleep better at night, when I know I have some assurance that the work that I’ve done is correct – someone else said so – and that is such a comforting thought.

External or Internal auditors | What is an auditor and why do I need one?