The accounting profession is responsible for the accuracy in presenting financial statements and ensuring that the statements are free of any misrepresentation. To ensure accuracy is present, each year these numbers are reviewed and analyzed by an external auditor.
An auditor also assesses the internal controls of an organization and its management and evaluates how those controls are implemented to protect the assets of the business. These auditors are usually licensed professionals familiar with the industry who are hired from an outside accounting firm. The fraud examiner, on the other hand, is called to determine whether fraud occurred and who is responsible for the fraud (Carmichael, pg. 4).
Both an auditor and fraud examiner share some common attributes, but their roles are different, and it is important to know and understand those differences.
What Does an Auditor Do?
An external auditor is contracted to provide an independent and objective assessment of the company’s operations and has a major focus on their internal controls. The auditor helps review and analyze how effective the company assesses risk management.
In addition, the auditor is looking to ensure that the financial information under review is accurate and without material errors. Their main purpose is to ensure all transactions and activities are without error, misrepresentation, or fraud.
An auditor will also evaluate the antifraud and internal controls over financial reporting and will issue an opinion on management’s assessment of internal controls. However, auditors will not look for fraud—their focus is on the internal controls and financial statement—but if there is a discrepancy upon review of any transactions or samples, they will notify management. Additionally, they should notify management of any red flags that may become evident.
What Does a Fraud Examiner Do?
While fraud examiners can have an accounting degree, they have specific knowledge of and resources for fraud detection. Fraud examiners are usually invited to a company when there is an issue and potential fraud present. These individuals do not express opinions on the financial statements or assess the internal controls of the business; they have been asked to help the company resolve a specific allegation of fraud and determine whether fraud has occurred and who has committed the fraud.
Fraud examiners assess the weaknesses in internal controls and locate the perpetrator of the fraud. Their focus is not on a report for shareholders, but on reports of the findings, which can eventually become part of civil or criminal proceedings.
Who Is Responsible to Detect Fraud?
Fraud remains a very clear and present threat to the accuracy of financial statement presentation.
When reviewing an audit, the auditor plans and performs a review of the transactions that post to the financial statements and provides an opinion that these are free of material misstatements; as such, they are also the first to have the ability to detect fraud. The fraud examiner only becomes part of fraud detection when the issue of fraud is present and they need to locate the perpetrator and take the next steps for legal action.
The audit sets the risk level and is the first to review the financial statements. Perhaps they need to add fraud detection to their audit plan.
Conclusion: The Differences Between an Auditor and a Fraud Examiner
Some key differences between an auditor and a fraud examiner include:
- An auditor is not required to look for fraudulent activities or to detect fraud within the accounting records, but if for some reason there is something that does not match, they do need to report this irregularity to management. Management, in turn, will decide whether to take the next step to invite a fraud examiner to review the items in question.
- Another difference is that auditor exams are planned and performed yearly, while a fraud examination is a spontaneous decision.
- The auditor reviews financial information for accuracy and materiality, while the fraud examiner has a different focus: to determine the fraud and its extent and gather information for the next step.
Each role has a defined skill set and plays an important role in the accounting field.
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