Qualities of an Auditor: Things One Should Know!
Audits are crucial to any organization as the report given by an auditor has a say on the reliability of financial statements. To ensure that audits are performed correctly, it is important to consider that the effectiveness of an audit depends upon the competence of the auditor performing it. Auditors, who occupy a position of trust, must possess basic human qualities besides technical training and professional education. An auditor must not only be equipped with adequate knowledge of how a business is conducted in general but must also be knowledgeable about the peculiarities of the particular company whose accounts are being audited. In the paragraphs below, let us have a look at all the necessary qualities of an auditor, categorized into three sections: personal, qualifications, and professional.
Personal traits or qualities of an auditor
Auditors, as we know, provide professional services to their clients. To render these services properly, auditors not only must possess the requisite skill and technical knowledge, but they should also have certain personal attributes. Some of these attributes or qualities of an auditor are given below:
Independence lays down the most important aspect of any audit process. While performing a financial audit, an auditor does not create new information but increases the credibility of existing accounts and/or reports by expressing his opinion thereon. His opinion is likely to enhance the reliability of such financial reports. Therefore, he must not be susceptible to any kind of pressure or influence from the client or a third party.
“Integrity” means the degree to which an auditor is honest in his work. He should, in no circumstance, misrepresent any fact or authenticate any details under pressure. Also, he should maintain the confidentiality of any information that is sensitive and that he comes to know during the performance of the audit.
An auditor should keep an impartial behaviour when it comes to reviewing different matters under audit. In fact, the ability of an auditor to act with objectivity determines the level of his independence too. For example, the auditor of a company thinks that the value of work-in-progress inventory has not been properly evaluated but still accepts a certificate from the management in this regard and expresses his opinion based on that certificate. In this case, the auditor lacks objectivity as he should have examined the valuation of inventory in detail as doubts sustained.
4. Ability to express and communicate
It is essential that an auditor possesses good communication skills, both oral and written. This shall help him to translate the results of his examination into an audit report. He should be able to draft a report which is clear and unambiguous. Also, if he lags behind in communication skills, he might not be able to interact effectively and obtain required information from the client and his staff. In addition, good communication is also needed for interacting with co-auditors and audit assistants.
An auditor must be tactful enough to gather all the necessary information from the client’s staff as well as outside parties. Unless he can obtain sufficient and appropriate audit evidence (both oral and written), he shall not be able to form a reasonable basis for arriving at a conclusion concerned with his audit engagement.
6. Aware of the latest developments
An auditor should stay abreast with any latest developments that may impact his audit work such as changes in laws, regulations, professional pronouncements, technological factors, etc. It is always desirable if he regularly reads profession-related journals, blogs, newspapers, etc.
7. Common sense
It goes without saying that an auditor should possess a fair sense of evaluation. This is required to distinguish between material and non-material matters in the client’s set of books.
Qualifications and Eligibility of an auditor
For statutory audits which are mandated by law, the law prescribes the minimum qualifications that a person should hold to be eligible to conduct such audits.
Sections 141(1) and 141(2) of the Companies Act of 2013 contain provisions on auditor qualifications. According to Section 141(1) of the Companies Act of 2013, a person may be appointed as a statutory auditor of a company only if he is a chartered accountant. A chartered accountant is one who holds a degree under the Chartered Accountants Act, 1949, is a member of the Institute (ICAI), and holds a valid certificate of practice. A firm whose majority of partners practicing in India are qualified for appointment as stated may be appointed as a company’s auditor by its firm name. When a firm, including a limited liability partnership, is designated as a company’s auditor, only the partners who are chartered accountants are authorized to act and sign on the firm’s behalf. A statutory auditor has to be an independent person/agency and cannot be an employee of the company.
However, it should be noted that there are no set qualifications for the position of internal auditor. Even though not mandatory, companies often appoint an internal auditor to ensure that their accounting and business controls are operating efficiently and to have a regular check on their operations. The internal auditor may be either a chartered accountant, whether or not in practice, or a cost accountant, or such other professional as the company’s Board may determine to undertake an internal audit of the company’s functions and activities. In fact, it can be performed by the company’s in-house audit department or it may be outsourced.
Professional traits or qualities of an auditor
Given below are some qualities expected of an auditor on the professional front:
1. Abide by professional standards
It is the duty of every auditor to carry out his work in compliance with standards issued by professional bodies.
Standards define certain performance criteria that an auditor must meet while conducting an audit. These lay down the primary framework within which audit practices should be designed. Professional bodies all over the world have set forth the desired audit practices & rules that must be followed by accountants and auditors. In India, to ensure that audit work is carried out in accordance with rules, the Institute of Chartered Accountants of India (ICAI) issues some standards and guidance notes from time to time. In alignment with International Standards, these standards are known as Standards on Auditing (SAs).
2. Knowledge of accounting
Undoubtedly, auditing requires a thorough understanding of accounting in all of its branches. The auditor must be completely familiar with all accounting principles and practices.
3. Knowledge of law and taxation
An auditor must have a thorough knowledge of the general principles of law governing matters with which he is likely to come into close contact. Company law deserves special mention, but commercial law, especially contract law, is equally important. It goes without saying that when companies are regulated by a particular statute, knowledge of that statute will be required; In addition, good knowledge of tax law and practice is essential.
An auditor must complete a thorough theoretical education in areas such as finance and management accounting, general management, business & corporate law, computers & information systems, taxation, and economics, among others. Practical training and theoretical education are both required for an auditor to build professional competence in order to do any type of audit assignment.
5. Code of conduct
The Ethical Standards Board of ICAI has also laid down a Code of Ethics for chartered accountants, in line with international best practices. It contains a set of rules and a code of conduct that accountants and auditors are expected to follow in their profession.
To sum up, all the above-mentioned traits or qualities are extremely important for an auditor to discharge his duties efficiently and without any bias.
Again, to serve the best to their profession, auditors should have knowledge and skills in the following areas:
- Principles, procedures, and techniques of auditing
- System of management and reference documents
- Situations in the workplace
- Laws, regulations, and other requirements pertinent to the field
- To understand the technological context in which the audit is being done, specific knowledge and abilities of the appropriate management system are required.
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