Types of Auditors
A popular classification of auditors uses three categories: independent, internal, and government.
Independent auditors are also referred to as external auditors and frequently as CPAs, public accountants, or "outside" auditors. Independent auditors are never owners or employees of the organization that retains them to perform an audit (their client), although they receive a fee from the client for their services. Independent auditors perform financial statement audits to meet the needs of investors and creditors and the requirements of regulatory bodies like the Securities and Exchange Commission (SEC). The audits result in a opinion on whether the financial statements are fairly stated, in all material respects, in conformity with generally accepted accounting principles. Occasionally, they perform attest engagements.
Internal auditors are employed by the enterprise they audit. The Institute of Internal Auditors has defined internal auditing as "an independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization. The objective discharge of their responsibilities ... The internal auditing department is an internal part of the organization and functions under the policies established by management and the board [of directors] The primary function of internal auditors is to examine their organization's internal control structure and evaluate how adequate and effective it is. In performing that function, internal auditors often conduct performance (or operational) audits that are broadly designed to accomplish financial and compliance audit abjectives as well.
The independence of internal auditors is different from that of independent (i.e., external) auditors. Internal auditors' independence comes from their organizational status - essentially, their function and to whom they report - and their objectivity.
For external auditors, independence derives instead from the absence of any obligation to or financial interest in their client, its management, or its owners.
Government auditors are employed by agencies of federal, state, and local governments. When the audit is of the government agency or department that employs them, they function as internal auditors; when they audit recipients of government funds (including other government agencies), they act as external auditors. For example, auditors employes by the U.S. Department of Agriculture may audit the internal operations of the department; they may also audit the economy, efficiency, and program resulis of research funded by the Department of Agriculture but performed by others, such as colleges and universities. Most audits performed by government auditors are performance audits of economy, efficiency, and programs, which include determining whether the entity being audited has complied with laws and regulations concerning economy and efficiency as well as those applicable to the program. Some audits, such as those by the Internal Revenue Service, are performed almost exclusively for compliance purposes.
There are many different groups of government auditors; virtually every level of government and every government agency has its own auditors. One group in particular warrants funther discussion - the General Accounting Office (GAO) A nonpolitical agency headed by the Comptroller General of the United States, it was created by and reports directly to Congress. The GAO has the authority audit virtually avery federal agency and expenditure. The GAO formulated the notion of and standards for economy, efficiency, and program audits, which are the major part of its activities.
As suggested by the foregoing discussion, the work performed by independent, internal, and government auditors is not munually exclusive. The classification scheme used in this book is of necessity limited, and does not fully describe the three branches of the auditing profession. There is considerable overlap in the types of audits they perform, and all prossess varying degrees of independence.