What Is the Responsibility of an External Auditor?

An external auditor is an independent certified professional who evaluates the practices and assets of a legal entity to determine whether they are in accordance with established procedures. He is "external" in the sense that he did not participate in preparing the organization's accounting records and does not have any relationship with the firm outside of the external audit. External auditors do their work by running sample transactions and reviews.

Organizations like governments, corporations and universities rely on external audits to maintain themselves accountable to their boards of trustees and other interested individuals. External auditors like Certified Public Accountants have licenses that corroborate their skill. Moreover, their independent relationship to the firms they audit makes their reports trustworthy.

The external auditor studies important financial documents, such as invoices, the petty cash book, bank book, bank statements, stock sheets and bank conciliation statements. He reviews these papers in the privacy of a quiet place and interviews staff members in confidence as needed.

Part of the auditing process involves the detection of fraud. When the accounting statements of a firm are in line with established procedures and best practices, the external auditor reports them as being "true and fair." He makes qualifications for adverse details – misstatements, undisclosed fraud, insider loans and incorrect accounting policy. If there are too many misstatements, the external auditor gives declares the audit as adverse, an opinion that can bring reputational and legal consequences for the organization.