The law requires an independent person (an ‘Auditor’) to sign off that a firm’s financial statements are “true and fair” and have been prepared using the relevant legislation.
An auditor can be employed for purposes of performing tax, accounting, and consulting services.
They may be directly employed by the firm or government agency undergoing audit (internal) or from a private accounting/audit firm or central/local government agency (external). An auditor’s job is to fundamentally evaluate a company’s financial activities and operations and ensure that its funds properly account for its cash flow.
Internal auditors will look to analyze or perform bookkeeping requirements for the firm for which they are employed. They also work on performance and risk assessment, budgeting, cost structure evaluation, and identify potential investment opportunities. Prospective efficiency improvements are communicated to upper management.
External auditors employed by individuals or public/private firms will look to prepare tax returns or advise on tax advantages of certain personal finance or business decisions.
Auditors employed by government agencies will assess the records of these entities or evaluate financial statements and operations of private firms or individuals subject to the government’s interests (e.g., taxation, regulation). This is largely to ensure that the evaluated entities are in compliance with the relevant laws, to detect potential cases of fraud, embezzlement, or error, and root out other sources of waste or abuse.