Auditors: Roles, Responsibilities and Why They Matter

Auditors have a unique role to play within the accounting and financial spheres with a focus on risk and regulatory requirements as opposed to growth or tax minimisation. Although auditors are engaged and paid by a business or organisation their primary duty is actually to the stakeholders of that entity and the wider community, not the person who engaged them. This is part of the independent assurance process that auditors undertake to provide stakeholders such as government departments or shareholders a level of assurance that the financial information can be relied upon.

When clients search for “auditors”, they are typically trying to understand what auditors actually do and why they are required to engage with one. This article will try and answer those questions in plain English while also exploring the role of auditors in simple terms and their responsibilities.

What Are Auditors?

Auditors are loosely defined as a type of accountant who specialise in assurance as opposed to tax, business reporting or liquidations. Auditors are independent professionals whose role is to examine financial information, such as a profit and loss and balance sheet, along with the financial processes and systems used to create that information. This examination must follow an audit process designed to provide a level of assurance which can also be phrased as a declaration of confidence. It is providing written independent confidence in the veracity of the financial statements being provided.  Auditors can work for themselves or within specialist audit firms like Auditors Australia, or as part of wider groups.

In Australia, the requirements for auditors and audit companies are strictly regulated by ASIC which is the government body that provides oversight to the audit community. ASIC imposes strict professional, ethical and independence requirements on auditors which ensure that they meet their obligations to stakeholders and the wider community. It is important to note that the role of auditors is not to prepare financial statements but rather to provide the objective, third party, review of that data. You should always use the ASIC Professional Registers Search to ensure that your audit firm is fully licensed with ASIC prior to engaging with them.

What Do Auditors Do?

Auditors follow a process in order to form an independent opinion as to whether financial statements present a true and correct view of an entity’s financial position (balance sheet) and performance (profit and loss).  Auditors do this via multiple steps including:

• Plan the audit including an initial risk assessment of the entity
• Examine the accounting records (Via Xero, MYOB, QBO, ERPs etc) and the financial reports prepared by the accountant
• Assess the risk of material misstatement and select testing according to that risk assessment
• Test transactions (ask for copies of documentation), balances (proof of the existence and valuation of assets and liabilities), and disclosures (related party disclosures for example)
• Evaluate internal controls and financial procedures and processes
• Obtain sufficient and appropriate audit evidence
• Issue an independent audit report

No two audits are identical as auditors use their professional judgement throughout the process and tailor their approach based on the size, complexity and risk profile of the entity being audited.

Types of Auditors

Within ‘auditors’ there are two broad categories of auditors with different roles and responsibilities. It is important to note that there are plenty of crossover between the skillsets of the roles listed below.

External Auditors

External auditors are employed by an audit firm and can be engaged by businesses and organisations to complete auditors for regulatory and other purposes. They are required to be Registered Company Auditors (RCA) in accordance with the Corporations Act 2001. It is important to note that many other government bodies require RCA’s for audits despite entities not being “companies” such as the Australian Charities and Not-for-profits Commission.

Internal Auditors

Internal auditors work within an organisation and serve an advisory role as they are not truly independent being employed by the organisation they are examining. Their role is to provide advice and support to the board on internal controls, risk management and governance processes to help to prevent an issue from developing and being discovered in the external audit.

For more information about internal versus external auditors checkout this article that explores the topic in more detail – Internal v External Auditor

When Are Auditors Required?

There are lots of different that an entity may require an audit, but most are driven by regulatory requirements. These include:

• Public companies required via ASIC & the ASX
• Financial services licensees required by ASIC
• Self Managed Super Funds required by the SIS Act.
• Not for Profits regulated under the ACNC
• Real Estates Agents under the various state authorities
• Legal practitioner trust accounts under the various state law societies
• Indigenous organisations under the ACNC or the CATSI Acts
• Other entities directed by regulators to be audited

There are also businesses and organisations that voluntarily choose to be audited to provide a higher level of assurance to their stakeholders, particularly if they are looking to raise funds or borrow substantial amounts of money etc.

Reasonable Assurance Provided by Auditors

It is important to understand that auditors do not guarantee accuracy, nor should they. The role of an auditor is to provide a reasonable level of assurance but not an absolute level, which would be practically impossible and increase audit costs to absurd levels. A reasonable level of assurance means that:

• Auditors will use sampling techniques taking a randomised selection of 5 or 10% of the total transactions which means there is always some statistical risk of things being missed
• Internal controls have inherent limitations and may not detect fraud which is the domain of forensic audits as opposed to financial audits
• All audits require a level of judgement or estimation
• There is a materiality threshold below which the auditor is not concerned with minor immaterial issues

Despite these limitations, reasonable assurance provides a high level of confidence for users of financial statements and is the global standard that auditors are required to work towards.

Niche Audit Firm

Auditors Australia is a niche audit firm providing independent, high-quality audit services across a range of industries in Australia. Our experienced auditors work collaboratively with clients to deliver reliable, compliant, and efficient audit outcomes.

Contact Auditors Australia to discuss your audit requirements and engage professional auditors you can trust.