What is Auditing?
Students contemplating a career in auditing need to know what the practice involves. By doing so, you will better understand the typical courses and degrees available to become an auditor.
Auditing is an accounting practice used primarily for examining the accuracy of an entity’s financial statements and financial reporting. For this purpose, auditors may look at real estate holding, inventory, payroll, cash flow, investments, and balance sheet.
If auditing is essentially an accounting function, what is the difference between an accountant and an auditor?
A corporation with an accounting department tasks them with the various daily financial transactions. Examples are paying vendors, calculating payroll and deductions, preparing tax returns, and balancing the books at the end of the fiscal year. The profession is crucial to the company’s operation, particularly one listed on the stock exchange, whose profits and losses can determine the stock price direction.
Companies and organizations typically hire auditors on a quarterly or annual basis or an as-needed basis if the accountants detect financial discrepancies. More importantly, any company registered with the U.S. Securities and Exchange Commission (SEC) must file audited financial reports. Therefore, the in-house accountants may prepare the reports; however, outside auditors will review and verify their accuracy. The auditors also ensure the annual reports adhere to accounting standards, known as Generally Accepted Accounting Principles or GAAP.
The company must retain an independent auditor to affirm the shareholders and the SEC that there was no impropriety in preparing the financial statements. The economic data’s accuracy also has a bearing on investment decisions in the company, credit from banks, and other entities involved in the company’s operation.
As addressed, auditors concern themselves with examining financial data and documents. If you want to work in auditing, you will need at least a bachelor’s degree in accounting, finance, or business administration. As you progress through your auditing career, professional certifications and a graduate degree are options that can help you advance.
You may notice in the above paragraph that auditing is absent, as a degree in this specialty is rare. However, degrees in accounting are plentiful.
In your search for prospective programs, you will likely encounter two different kinds of auditing: internal and external. Internal auditors work for the company or organization they are auditing. In contrast, external auditors work for outside or independent auditing organizations, such as a government entity, accounting firm, or a group of shareholders.
The Albers School of Business and Economics at Seattle University offers an undergraduate degree in accounting that can lead to a Certified Public Accountant (CPA) certification. The program has an optional Service Practicum that allows students to work with United Way of King County (Seattle-Tacoma-Bellevue area) to assist clients with tax preparation.
Students at Albers are also encouraged to take Principles of Accounting I (Financial) to master the interpretation of financial statements. Other classes cover Managerial Accounting, Information Systems, Intermediate Financial Accounting, Federal Income Tax, and Auditing. In the latter, students learn about internal controls, ethics, and fraud in accounting practices.
Albers incorporates internships at prestigious Seattle-area companies like Amazon, Boeing, Nordstrom, Expedia, Deloitte, T-Mobile, and Zillow. Consequently, graduates from the bachelor’s program have the qualifications for a career as:
- External Auditor
- Internal Auditor
- Financial Analyst
- Government Auditor
- Forensic Accountant
- Tax Accountant
According to the Association of Certified Fraud Examiners (ACFE), auditors review the organization’s financial records to determine accuracy and compliance with accounting standards such as the GAAP or International Financial Reporting Standards (IFRS). In their examinations, internal and external auditors look for inaccuracies that suggest mismanagement of finances, such as fraud or embezzlement.
Individuals specializing in forensic accounting should consider obtaining the Certified Fraud Examiner (CFE) credential after two years of experience and membership in the ACFE.
Internal auditors are also responsible for finding opportunities to improve an organization’s operations. Internal auditors look at financial reports and other aspects of the business, from company policies to information technology solutions. In many ways, internal auditors act almost as in-house business consultants, making recommendations on increasing productivity, reducing waste, and improving overall business operations.
Further information is at The Institute of Internal Auditors-North America (IIA)
Auditing and Accounting Proficiency
Auditing skills are integral to success in accounting, and accounting skills are paramount to success in auditing – one complements the other. Whether or not your financial reporting role is categorized as an auditing position, you need to know the theory, practices, and auditing techniques. Similarly, auditors need to know the foundations of accounting principles and practices to do their work, so they must have an educational background in general accounting. As a result, most bachelor’s degree programs in accounting include at least one auditing course, if not more.
As stated above, colleges and universities omit auditing as a major or minor. Therefore, as indicated by the ACFE, the path to becoming an internal auditor is with a bachelor’s or master’s degree plus certifications. Most auditors start their careers with a general accounting degree, followed by a CPA. Since the practice of auditing entails looking for inaccuracies, it indirectly involves forensic accounting. The intent of most audits doesn’t begin with the suspicion of fraud or embezzlement; however, evidence of a financial crime might arise during the audit—one reason to add the CFE to your repertoire.
Accountants who file reports to the SEC must be CPAs.
When you study accounting at the bachelor’s degree level, you will take courses in various topics, including financial accounting, cost accounting, auditing, and accounting information systems. Coursework typically begins with introductory classes, such as accounting principles, and progresses through intermediate accounting coursework. General business classes, too, are essential for success in an auditing or accounting role, particularly if you aspire to work as an internal auditor. You may find yourself completing core business studies in economics, finance, marketing, human resources, management, and organizational behavior alongside your focused accounting coursework.
Students can choose a Bachelor of Arts or Science in Accounting – the former may include more liberal arts classes in the General Requirements. Examples are communication, psychology, literature, and political science, and a B.S. may have calculus, quantitative studies, natural sciences, physical sciences, and history. As expected, each program differs in its courses.
The B.A. in accounting at Keiser University requires students to complete three credits each of Microeconomics, Macroeconomics, and Statistics before the major courses. Available online and on several campuses throughout Florida, graduates will know tax concepts, use business and accounting applications, and understand regulatory standards.
The Keiser curriculum includes six hours each of mathematics and natural sciences (mainly biology), and three hours of social science, computers, and communications.
According to the United States Bureau of Labor Statistics (BLS), the specialty of an information technology auditor refers to a professional who uses computer science and information systems to examine the internal controls that govern the company or organization’s technology systems. The degree path differs from financial auditors in that you require a degree in computer science, information systems, or information technology.
The IT auditor has its own set of certifications – one is the Certified Information Systems Auditor, offered by the Information Systems Audit and Control Association (ISACA). The 145,000 global members in 188 countries serve to advance knowledge and credentials for professionals in business technology.
It’s possible to become an auditor with only a bachelor’s degree in accounting or a bachelor’s degree and some accounting work experience. However, some employers may prefer or require candidates for auditing roles to have more education and training than just an undergraduate degree. If you aspire to move up to positions such as senior auditor, having a professional certification or a master’s degree can be especially valuable.
By searching for master’s degrees in auditing, you may end up at institutions in Sweden, Norway, or South Africa. Individuals who want to stay in the United States should search for graduate programs in accounting.
UMass Lowell has a Master of Science in Accounting and a Master of Business Administration-Accounting option. Graduates of the former will meet the licensing requirements to become CPAs after completing ten courses or thirty credits. There are four concentrations or options:
- Business Analytics
- Corporate Accounting Leadership
- International Business
All four provide three hours of Advanced Auditing, and they all have Fraud Examination and Forensic Accounting (3 hours) in electives. Number two studies Accounting Data Analytics, Financial Statement Analysis, Corporate Finance, and more.
The UMass MBA offers ten options: accounting, finance, business analytics, information technology, international business, and healthcare.
If you’re considering graduate school, a master’s degree program in accounting or forensic accounting could prove valuable. In these programs, you will take advanced and specialized courses such as fraud auditing, fraud examination, white-collar crimes, financial crimes, forensic accounting, advanced internal auditing, and auditing practice. Often, students can complete a master’s degree in accounting in just one to two years, and having this advanced degree can help grads move into senior auditing or management roles.
Significance of Certifications
Job openings advertised at online employment sites, like Indeed, give you a window into what qualifications employers want for an auditor. Most stipulate a bachelor’s degree in accounting, finance, or business administration. Another point of emphasis is certifications. In San Antonio, Texas, a public energy company lists a CPA, Certified Internal Auditor, Certified Information Systems Auditor, and Certified Fraud Examiner as preferred credentials.
The globally-accepted Certified Internal Auditor (CIA) certification, as mentioned above, is offered by the Institute of Internal Auditors (IIA). Applicants must first create a profile in its Certification Candidate Management System (CCMS) before uploading the necessary documents. After approval, candidates can schedule and take the examination.
In 2020, the global pass rate was only 41% for the CIA.
Another recognized certification is the QIAL or Qualification in Internal Audit Leadership, and it is aimed at those in leadership or executive positions or aspiring leaders. The latter must complete three case studies, make a presentation to a panel, and conduct a panel interview. Experienced leaders or instructors must also make a presentation and be interviewed; they submit a Portfolio of Professional Experience (PPE) instead of the case studies. (Aspiring leaders require five years’ internal audit experience).
Students can start their journey towards the CIA by earning the Internal Audit Practitioner Designation that demonstrates their knowledge of the International Standards for the Professional Practice of Internal Auditing. Available through the IIA, candidates study a syllabus before taking the two-hour 100 multiple-choice exam onsite or online (via live proctoring). The cost for IIA members is $75 application fee and $150 for the exam registration.
Accountants and auditors can add more initials to their business cards by earning the CRMA or Certification in Risk Management Assurance. It proves an understanding of core business practices in risk management, quality assurance, strategic organizational risks, and risk management concepts in auditing. Before sitting for the exam, candidates need at least five years of internal audit or risk management experience and twenty hours of annual Continued Professional Education (CPE).
One certification that auditors should have is a CPA. Having these initials after your surname or on a resume speaks volumes for your commitment to the accounting profession—moreover, the accomplishment exudes expertise. Earning a CPA is analogous to passing the bar exam. Yes, you can do legal work without passing the bar, but you can’t represent clients. Your status and job opportunities are instantly elevated with the CPA designation.
Further details are at the American Institute of CPAs (AICPA), with more than 431,000 members in 130 countries working in consulting, government, education, public enterprises, and private practice. Students are eligible for a free membership that provides access to the AICPA News Update and other publications. In addition, students receive up to 80% off Certificate Programs in Cyber Security, Blockchain, and Data Analytics.
The three steps to becoming a CPA are:
- Education: Requirements vary by state but typically include 150 semester hours in your degree.
- Pass the four sections of the CPA exam with a 75 or higher.
- Experience: Most states require one to two years supervised under a CPA. There are exceptions to the supervision; for example, Minnesota requires one year in government, public practice, or industry to qualify.
You may also need a state license, which could entail the AICPA Professional Ethics Exam (Illinois, for example).
Often, the experience gained through internships and attributes such as communication, analytical and leadership skills, and technical auditing and accounting knowledge help new graduates succeed in auditing roles.