Question

b) Explain the major differences in the scope of the audit responsibilities for CPAs, GAO auditors, IRS agents, and internal auditors.

Answer 1

The major differences in the scope of audit responsibilities for CPAs, GAO auditors, IRS agents, and internal auditors are:

1. CPAs perform audits in accordance with auditing standards of published financial statements prepared in accordance with generally accepted accounting principles.

2. GAO auditors perform compliance or operational audits in order to assure the Congress of the expenditure of public funds in accordance with its directives and the law.

3. IRS agents perform compliance audits to enforce the federal tax laws as defined by Congress, interpreted by the courts, and regulated by the IRS.

4. Internal auditors perform compliance or operational audits in order to assure management or the board of directors that controls and policies are properly and consistently developed, applied and evaluated.

Internal auditors are not responsible for execution of company activities; they advise management and the board of directors (or similar oversight body) regarding how to better execute their responsibilities. As a result of their broad scope of involvement, internal auditors may have a variety of higher educational and professional backgrounds.

The scope of internal auditing within an organization is broad and may involve topics such as an organization's governance, risk management and management controls over: efficiency/effectiveness of operations (including safeguarding of assets), the reliability of financial and management reporting,^[3][4] and compliance with laws and regulations.

The term audit usually refers to a financial statement audit. A financial audit is an objective examination and evaluation of the financial statements of an organization to make sure that the financial records are a fair and accurate representation of the transactions they claim to represent. The audit can be conducted internally by employees of the organization or externally by an outside Certified Public Accountant (CPA) firm.

KEY TAKEAWAYS

• There are three main types of audits: external audits, internal audits, and Internal Revenue Service (IRS) audits.
• External audits are commonly performed by Certified Public Accounting (CPA) firms and result in an auditor's opinion which is included in the audit report.
• An unqualified, or clean, audit opinion means that the auditor has not identified any material misstatement as a result of his or her review of the financial statements.
• External audits can include a review of both financial statements and a company's internal controls.
• Internal audits serve as a managerial tool to make improvements to processes and internal control.

Internal Audits

Internal auditors are employed by the company or organization for whom they are performing an audit, and the resulting audit report is given directly to management and the board of directors. Consultant auditors, while not employed internally, use the standards of the company they are auditing as opposed to a separate set of standards. These types of auditors are used when an organization doesn’t have the in-house resources to audit certain parts of their own operations.

Internal Revenue Service (IRS) Audits

The Internal Revenue Service (IRS) also routinely performs audits to verify the accuracy of a taxpayer’s return and specific transactions. When the IRS audits a person or company, it usually carries a negative connotation and is seen as evidence of some type of wrongdoing by the taxpayer. However, being selected for an audit is not necessarily indicative of any wrongdoing.

Many companies provide their financial statements, along with a CPA’s report, to lenders, investors, suppliers and customers. Informed readers of the report will gain varied levels of comfort based on the type of financial statement provided.

Not all reports are the same. A CPA can provide different levels of service related to a company’s financial statements.