August 28, 2015 | Monica Hubler , DBA, Full-Time Faculty, Purdue Global
The accounting profession is one that is responsible for the accuracy in presenting financial statements and to ensure 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 is also required to assess the internal controls of the organization and management and how they are implemented to protect the assets of the business. These auditors are usually hired from an outside accounting firm, familiar with the industry, and licensed professionals. The fraud examiner, on the other hand, is one who is called to detect fraud. Both an auditor and fraud examiner shares some common attributes, but their roles are different and it is important to know and understand those differences.
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 to 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. There main purpose it to ensure all transactions and activities are without error or misrepresentation.
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 in the internal controls and financial statement—but if there is a discrepancy upon review of any transactions or samples, they should notify management. Additionally, they should notify management of any red flags that may become evident.
While fraud examiners can have an accounting degree (or several), they have a specific knowledge and resource 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 to resolve a specific allegation of fraud. Fraud examiners assess the weakness in internal controls and locate the perpetrator of the fraud. Their focus is not on a report for shareholders but reports of the findings, which can eventually become part of civil or crime proceedings.
As we analyze the differences between an auditor and a fraud examiner, we see that an auditor is not required to look for fraudulent activities 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 make the decision to take the next step to invite an fraud examiner to review the items in questions. Another difference is that auditor exams are planned and preformed yearly, while a fraud examiner is a spontaneously decision. The auditor is reviewing 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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Monica Hubler, DBA, is a full-time faculty member at Purdue Global. The views expressed in this article are solely those of the author and do not represent the view of Purdue Global.