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Auditing

Auditing in Accounting: What it is and how it works

The primary role of an accountant is to handle a variety of tasks including tax preparation, financial planning and audits.  

In addition to helping businesses and individuals follow the required accounting standards and tax laws, accountants are increasingly capitalizing on new ways to utilize their knowledge and experience to make a positive impact on the clients they serve.  

With advanced technology shifting the way accountants work, many are looking to expand into specialized services that can give them a leg up on the competition. One of these expanded service areas is audit.  

But what exactly does offering auditing services entail? How does it compare to traditional accounting services? And what tools and resources are available for accountants who want to specialize in audit?

Let’s start from the beginning.  

What’s the difference between accounting vs auditing?

Accounting and auditing are related and go hand in hand with one another. Accounting provides information on the financial health, profitability and performance of a company, while auditing aims to determine whether or not the financial data provided by accounting is correct. Essentially, the work completed by an accountant is certified by an auditor. 

The purpose of conducting an audit is to obtain an independent opinion about a company’s financial statements. This opinion provides insight into whether the company’s reports and financial statements are accurate and reliable. 

Financial statements (i.e., income statements, balance sheets, and cash flow statements) capture the operating, investing, and financing activities of a company through various transactions. Because these statements are developed internally, there is a need for an independent third party to verify that there is not any fraudulent behavior by the preparers of the statements.  

Auditing makes certain that companies represent their financial positioning fairly and accurately, and in accordance with accounting standards. 

Are there different types of auditing in accounting?

In accounting, there are three main types of audits: external, internal, and Internal Revenue Service (IRS) audits.  

Accountants who specialize in internal audits are company employees who examine issues related to the company’s financial and business practices. The findings of an internal audit are used to ensure compliance with laws and regulations, make improvements to internal controls, and help management identify flaws in processes prior to a review by external auditors. 

External auditors work outside of the company and independently evaluate financial records. After a comprehensive assessment, they provide an objective opinion that either confirms the company’s financials are both accurate and complete or offers guidance to help the company make more informed financial decisions. 

The IRS also performs audits to verify the accuracy of a taxpayer’s tax return and specific transactions. An IRS audit is typically determined by a random statistical formula that analyzes a taxpayer’s return and compares it to similar returns. A taxpayer may also be selected for an IRS audit if they’ve had transactions with another person or company found to have tax inaccuracies during an audit. 

What does an audit accountant do?

Accountants who specialize in auditing evaluate financial records to validate accuracy. They may focus on internal or external audits to ensure that a company’s income statement, balance sheet, and cash flow statements are in compliance with tax laws, regulations, and all applicable accounting standards.  

In their work to verify the accuracy of financial statements and tax filings, internal and external auditors may search for clues as to why some figures don’t quite add up. By identifying discrepancies and providing guidance, auditors can help protect businesses from fraud, boost operational efficiencies, and mitigate risk. 

In terms of an IRS audit, an audit accountant provides support to an individual taxpayer by representing them before the IRS and communicating with the IRS on their behalf. This includes preparing, filing, and submitting documents, and providing advice on federal tax matters. Of course, the goal of most accountants is to be proactive by teaching clients how to avoid IRS tax audits in the first place.  

Why do accountants get into auditing?

Accounting and auditing require similar skill sets; however, slight differences exist.  

An accountant is typically detail-oriented and meticulous. For organizations large and small, even the slightest mistake can be costly. As an accountant, the last thing accountants want is for an auditor to come in behind them only to discover discrepancies or errors.  

Auditors pay great attention to detail but also have strong investigative skills that enable them to follow clues and uncover fraudulent behavior. In addition to catching honest mistakes, an auditor is also good at digging deep to capture deliberate and intentional miscalculations. 

Why should accountants consider offering audit services?

By offering audit services, accountants can help organizations gain deeper insight into their business. By acting as a trusted partner, auditors assist organizations in meeting assurance demands defined by applicable regulations and standards with greater confidence.  

An audit can be a powerful tool for shining a light on the current state of a business, offering insight that can inform decision-making and future aspirations.  

A growing practice area is ESG audit. Investors and stakeholders are increasingly seeking transparency in ESG initiatives—and with experience in auditing financial statements, regulatory information, and managing internal controls attestation, this niche translates well for auditors who can seamlessly apply their knowledge to ESG data sets.  

The same holds true for cryptocurrency audits which are a growing need.  

No matter your area of focus, the latest advances in audit automation and research solutions make it possible to offer high-quality audit services.  

Accounting and auditing software and guidance for accountants and CPA firms

As the accounting profession evolves and expands, practitioners are increasingly looking to software to drive efficiencies in all tax areas, and audit is no exception. In a complex tax landscape driven by advances in technology and constantly changing accounting and auditing standards, accountants need a dynamic, end-to-end solution for accurate, efficient audits.  

With technologies like cognitive computing, artificial intelligence (AI) and data analytics gaining popularity, many accountants are investing in high-tech solutions to enhance their audit offerings. Add to that cloud-based audit technology and integrated research solutions and accountants can collaborate seamlessly without sacrificing security—all while completing audits faster and with absolute confidence. 

So how does this technology help audit accountants? Cognitive computing and AI can simulate human thought processes in a computerized model using machine learning, data mining, pattern recognition and natural language processing. When it comes to audits, these technologies can aggregate data to identify common risk areas based on attributes, like industry or company size, and formulate an audit plan.  

These technological advances are transforming the way accountants conduct audits, helping them do their jobs better, more efficiently and with more accuracy. By streamlining data and eliminating manual work, auditors can focus more time on situational judgements and seeing the full picture, which helps their clients ultimately make better decisions.  

This judgment involves things like identifying key audit risks and determining how to design audit procedures to respond adequately to those risks. Because audit judgment skills are typically developed and refined through years of experience, training, and interaction with colleagues, the latest technologies can harness these judgments from across thousands of audits to provide assistance to auditors in real-time, while keeping client information secure.  

While most accounting firms don’t have the ability to make large-scale investments in AI, cognitive computing or data analytics, they can look to audit software providers to incorporate this technology into their offerings.  

Historically, audit accountants have worked through their clients to gain access to financial and operational information, select samples of populations, test for exceptions, and extrapolate results. With advanced data analytics, however, auditors can now efficiently obtain client data down to the transactional level, store it securely in the cloud, and apply analytics against the data to identify risk, including potential fraud risk. Auditors can also more easily benchmark their clients’ business metrics against other similar businesses and provide key insights to help clients run their business more effectively.   

With cloud-based technology, audit accountants can securely access their audit online, from anywhere, and seamlessly collaborate with stakeholders in real time. By relying on a trusted software provider with leading audit methodology and backed by experienced editors and authors, audit accountants can ensure materials are accurate to pass peer review. 

By coupling the latest technology with advanced research and learning solutions, audit accountants can ensure quality and efficiency for audit, accounting and tax engagements. 

A trusted partner for auditing and accounting

In a constantly changing audit landscape, achieving efficiency, accuracy and consistency is necessary. Implementing a fully integrated online audit solution is the key to securing your firm’s success now and in the future 

Thomson Reuters has a long history of providing audit solutions and leading audit methodology backed by experienced editors and authors who can ensure compliance with professional standards and peer review. 

From financial statement compilation and reports to financial audit management, value-added analysis, and more, accounting and auditing software and guidance from Thomson Reuters can help you serve all your client’s accounting, audit, bookkeeping, and financial needs with maximum efficiency.  

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