What is an auditor?

Definition: In accounting, an auditor is someone who is responsible for evaluating the validity and reliability of a company or organization’s financial statements.

The auditor is an individual who is trained to review and verify that the accounting data provided by an audited company accurately corresponds to the activities that have been partaken by the company.

The auditor's job is to write a report at the conclusion of the audit which determines the level of accuracy and clarity that the organization has accounted for.

For instance, if all accounting moves made by the company are reflected in the books (such as the general ledger), and all data that appears in the records correspond to the course of business in the company, then the audit will have shown no misstatements .

External vs. internal auditors

Auditors of financial statements can be externally or internally located in reference to the company or organization whose financial statements they are auditing.

External auditors

External auditors are independent accounting/auditing firms that are hired by companies subject to an audit. External auditors express their own opinions on whether the financial statements of the company in question are free of material misstatements (these could be due to fraud, error or otherwise).

For publicly-traded companies, external auditors could also be required to provide an opinion on the effectiveness of internal controls over financial reporting.

Internal auditors

Internal auditors are those who are employed by the company that they audit. They primarily provide audits related to the effectiveness of the company's internal controls over financial reporting.

Since the Sarbanes Oxley Act of 2002 was placed into effect, they must also assess the effectiveness of management’s internal controls over financial reporting.

Internal auditors are not independent of the company they perform audit procedures for, but they usually do not report directly to management, in order to reduce the risk that they will be swayed to produce biased assessments.