What are the essential qualities of an auditor? As we know, an auditor is regarded as a watchdog, which means that he is appointed to safeguard the interests of shareholders or owners of the business. Just as a watchdog protects the property of its owner, it is the duty of an auditor to help protect the property and rights of the owners.
He must inform the shareholders whenever their rights are affected by the wrongful acts of management. The auditor must make every reasonable effort to detect errors and frauds so that the interests of shareholders remain protected.
At the same time, an auditor is not a bloodhound. He is not expected to hunt down every matter with suspicion beyond reason, but he also cannot protect management when management is found guilty of errors, frauds, or manipulation of accounting records. He must not show favoritism toward those who are responsible for negligence or misuse of business property. If management fails to protect the rights of shareholders, the auditor has the right and duty to report the matter to them.
Essential Qualities of an Auditor
There is no doubt that an auditor is not a bloodhound. He cannot misuse the property of the business for his personal gain, nor can he permit management to misuse the assets of the concern. He must use reasonable skill and care in locating errors and frauds so that the objectives of the audit can be properly achieved.
The essential qualities of an auditor are generally divided into two broad categories. Some people mix the qualities and responsibilities of an auditor together, but these two concepts are completely different and should not be confused.
Professional Qualities of an Auditor
1. Accounting
The auditor must be an expert in the field of accounting. He should know the principles, methods, and techniques of accounting, because accounting is a continuous process that goes on throughout the year. He must understand the accounting system of a business, including its personnel, procedures, records, forms, and devices.
2. Auditing
The auditor must also be an expert in the field of auditing. He should have sound knowledge of the rules, principles, and procedures of audit work. In addition to theoretical knowledge, he should possess practical experience in checking financial statements, examining records, and evaluating the performance of a business concern.
3. Company Law
An auditor should have complete knowledge of company law. He should understand the Companies Ordinance 1984, Companies Rules 1985, Modaraba Companies Ordinance 1980, Modaraba Companies Rules 1981, and Banking Companies Ordinance 1962. This knowledge enables him to examine financial statements in the light of legal requirements.
4. Mercantile Law
An auditor should be well-versed in mercantile law. He should know the Contract Act 1872, Sale of Goods Act 1930, Negotiable Instruments Act 1881, Partnership Act 1932, Insolvency Act, Transfer of Property Act, and Common Carrier Act. Since business transactions are governed by these laws, the auditor must understand them clearly.
5. Taxation Laws
Knowledge of taxation is also essential for an auditor. He should know the Income Tax Ordinance 2001, Sales Tax Act, Gift Tax Act, Excise laws, and Customs Act. He should also understand tax rates and their application, because taxation affects financial reporting and compliance.
6. Business Organization and Operation
The auditor must understand the organization structure and operations of a business. He should know how workers are placed in different jobs, how various departments function, and how activities are coordinated within the concern. This understanding helps him assess the effectiveness of internal control and business management.
7. Budget Preparation
The auditor should be capable of preparing and understanding budgets. Budgets are based on past figures and future estimates, and they are prepared for different functions of the business. Knowledge of budgeting helps the auditor in reviewing business planning and financial control.
8. Electronic Data Processing
The auditor must have knowledge of electronic data processing. Since computers are used in business for accounting and many other functions, he should have the necessary training to examine and handle computerized data effectively.
9. General Knowledge
An auditor should possess sound general knowledge that may help him in his professional life. He should remain aware of economic, social, and political conditions, because these factors affect business operations. He should also stay in touch with the latest developments that influence accounting, auditing, and commercial practice.
Personal Qualities of an Auditor
1. Tact
The auditor should have tact in dealing with management and staff. At times, he may need technical information in order to comment on or criticize certain policies. When information is missing, he should be able to obtain it through discussion and reasoning without offending the concerned persons.
2. Honesty
Honesty is one of the most important personal qualities of an auditor. He must maintain high moral standards and must report a true and fair view of business matters. Straightforwardness and integrity are essential for professional credibility.
3. Independence
The auditor must be independent while planning, investigating, and reporting. His judgment should not be influenced by any person, whether directly or indirectly. Independence is necessary if the audit opinion is to be trusted by shareholders and other users.
4. Vigilance
The auditor must remain vigilant regarding the activities of accounting staff and audit staff. Through alertness and careful observation, he is better able to discover errors and frauds. A vigilant auditor maintains an active and attentive mind throughout the audit process.
5. Judgment
The auditor should possess sound judgment. Matters such as depreciation, provision for bad debts, and valuation of inventory often require professional judgment rather than mechanical calculation. He must apply his knowledge and experience in making such decisions.
6. Leadership
The auditor is the leader of the audit team. Senior and junior audit clerks work under his supervision, and he must be able to guide them effectively. Good leadership helps maintain discipline, improves efficiency, and ensures proper completion of audit work.
Conclusion
An auditor is a professional accountant who must possess both professional and personal qualities in order to perform his duties properly. He should examine the internal control system before beginning the audit, verify assets and liabilities carefully, and ensure that financial statements are prepared in accordance with generally accepted accounting principles.
Whenever any doubt arises regarding error or fraud, he should investigate the matter thoroughly in order to remove uncertainty. The standard of audit work has become more demanding over time, especially after important cases such as McKesson and Robbins in the United States in 1938. As a result, auditors are now expected to take a more active role in matters such as stocktaking and verification. If the auditor is not satisfied with the procedures followed, he has the duty to mention the matter clearly in his report.
See Also: Duties of an Auditor
