What is an External Auditor?

An external auditors are public accountants who conduct audits, reviews, and other work for their clients. An external auditor is independent of all clients, and so is in a good position to make an impartial evaluation of the financial statements and systems of internal controls of those clients. The resulting auditor opinions are highly valued by members of the investment community and creditors, who need an independent appraisal of the financial statements of organizations. These audit opinions are required by the Securities and Exchange Commission for publicly-held companies. Lenders and many investors also require audit opinions on the financial statements of their borrowers and investees, respectively. This means that external auditors are generally in high demand.

The External Auditor Certification

External auditors are certified by a governing body, which in the United States is the American Institute of Certified Public Accountants. As certified public accountants, external auditors have proven that they have a certain minimum level of training and experience, and have passed a lengthy examination. These auditors must also fulfill periodic continuing professional education requirements in order to keep their certifications current. Because five years of college accounting courses are required to be a CPA, many college students prefer not to make the investment in becoming one. This means that the external auditor profession is now in something of a crisis, with roughly three-quarters of all CPAs at or near retirement age.

Types of External Auditors

External auditors come in different types, each specializing in various aspects of auditing to meet specific needs. Here are the primary types of external auditors:

Financial auditors. Examine financial statements to ensure they are accurate, complete, and comply with accounting standards (e.g., GAAP or IFRS).
Compliance auditors. Ensure that an organization complies with laws, regulations, and internal policies.
Operational auditors. Evaluate operational efficiency, effectiveness, and processes within an organization.
IT auditors. Audit information technology systems, controls, and security measures. They assess cybersecurity risks, data integrity, and IT control frameworks.
Forensic auditors. Investigate financial records for fraud, embezzlement, or other criminal activity. Their evidence may be used in legal proceedings.
Environmental auditors. Assess compliance with environmental laws, sustainability practices, and impact of operations on the environment.
Tax auditors. Review tax filings to ensure compliance with tax laws and identify discrepancies.
Government auditors. Conduct audits of government agencies or organizations receiving public funds.
Certification auditors. Evaluate compliance with specific certifications or standards (e.g., ISO standards).

Each type of auditor plays a vital role in ensuring accountability, transparency, and adherence to standards in their respective fields.

External Auditor FAQs

How does an external auditor differ from an internal auditor?

An external auditor is independent of the organization and focuses primarily on whether financial statements are fairly presented under the applicable reporting framework. An internal auditor usually works for, or is engaged by, the organization and evaluates internal controls, risk management, compliance, governance, and operational efficiency for management and the board.

Can external auditors provide consulting services to their audit clients?

Yes, but only if independence is preserved. Consulting services cannot involve management decisions, bookkeeping, system design that affects financial reporting, valuation work later audited, or other prohibited services. For public-company audit clients, SEC rules are especially restrictive; private-company audits may allow some nonattest services with safeguards and client responsibility.