LaDonna Sinning - The Journal Record
Mar 14, 2023
Auditing is the process of examining and evaluating an organization’s financial statements to ensure those financial statements are a fair and accurate representation of the transactions they claim to represent in compliance with generally accepted accounting principles.
Auditing is the process of examining and evaluating an organization’s financial statements to ensure those financial statements are a fair and accurate representation of the transactions they claim to represent in compliance with generally accepted accounting principles. Despite the importance of this process, there are several common myths surrounding auditing that can mislead individuals and organizations. There are a number of myths surrounding audits and auditing that need debunking.
• Myth 1: Auditors are out to find mistakes and faults. One of the most common myths of auditing is that auditors are looking to find faults and mistakes in an organization’s records and procedures. While it is true that auditors attempt to identify any irregularities or noncompliance, their primary goal is to assist the organization. Auditors work to improve an organization’s financial accounting processes and procedures and provide insights on best practices and implementation of new standards. Your external auditor is a double-check for you and a resource.
• Myth 2: Auditors are responsible for detecting all fraud. Management of the organization is responsible for the design and implementation of programs and controls to prevent and detect fraud. While auditors look for fraud, they cannot be expected to catch all instances of fraud or financial mismanagement. Auditors can only examine the information that is provided to them, and it is up to the organization to ensure that they are providing accurate and complete information. Further, audits are based on risk assessments and sampling techniques which cannot be expected to be fool proof. Statistically, the best approach for uncovering fraud is with tip hotlines so that employees, vendors, customers and others can alert the owners or the board of suspected fraud.
• Myth 3: Auditors should be rotated to improve results. The argument around rotating auditors is reliant on an assumption that, over time, and audit firm becomes “too close” to a client and independence and professional skepticism is compromised. While this is possible, an auditor who is meeting their professional ethics standards would not permit this to occur. On the whole, rotating auditors can mean that institutional knowledge by the auditor is lost and the next auditor may require some years before they are as familiar with the processes and procedures of the organization and may, therefore, be less effective in conducting the audit.
• Myth 4: Auditors only communicate with upper management. Some individuals believe that auditors only communicate with upper management and do not interact with other employees. However, auditors typically engage with individuals at all levels of an organization to gain a comprehensive understanding of the organization’s operations. By doing so, auditors can better identify areas of improvement and ensure that the organization is functioning efficiently.
In conclusion, auditing is a critical process that helps organizations improve their financial management, identify areas of improvement, and mitigate risks. By dispelling these myths and gaining a better understanding of the auditing process, organizations can work with auditors to achieve their goals and remain compliant with regulations and standards.
LaDonna Sinning, CPA, CFE, is a partner Arledge, the largest locally owned accounting firm in the Oklahoma City metropolitan area. Arledge is a recognized leader in the accounting industry offering practical solutions in the areas of tax planning, auditing, consulting, accounting advisory services and client accounting.