The main thing internal and external auditors have in common is the great emphasis they place on their independence. When people read a report from an auditor, whether internal or external, they should be confident that the document is factual and objective.
The U.S. Bureau of Labor Statistics defines an external auditor's work as making sure that companies are run efficiently, that its public records are accurate, and that it pays its taxes on time. The external auditor is required to comply with the Generally Accepted Auditing Standards, or GAAS, and the Generally Accepted Accounting Principles, or GAAP.
But that isn't all that external auditors do. Besides reviewing financial statements, they must connect numbers to a general ledger and make inquiries into the company's management. They must ensure that an organization or company's financial statements are free from errors and misstatements. They also review other entities that have financial reporting requirements such as retirement funds, 401Ks, nonprofits, and municipalities.
It is important to note, however, that auditors are not necessarily involved in fraud detection. Their function is to make certain that financial statements are a true representation of the company's actual situation. When an external auditor detects what appears to be fraudulent information, they bring it to the attention of the management and will consider halting the engagement if management refuses to take appropriate actions. External auditors are required to investigate material issues that arise from inquiries by regulatory authorities (like tax authorities).
If a company is listed on a stock exchange in the U.S., it is required to have special attention from the external auditor when they evaluate financial reporting and evaluation of the company's internal controls. This is a result of the Sarbanes-Oxley Act, a piece of legislation passed in the wake of financial scandals at U.S. companies like Enron and WorldCom. Any relationship between a business or organization and an external auditor has to be disclosed in the auditor's reports. Auditors must not own a stake in those they audit.
Certified public accountants are the only non-governmental external auditors who can do audits and attest to a business or organization's financial statements' integrity on audits for public review in the U.S. In other nations like Canada and the UK, chartered accountants are authorized to do external audits.
An external auditor has to review his or her staffers that are assisting in the audit. The external auditor is responsible for recording the billable hours for the entire staff and is the main contact between the client and the audit staff. When the audit is finished, the external auditor then has to evaluate the work of the staff.
External auditors have to travel extensively well over half the time. They audit entities of all sizes. An external auditor has to be a licensed CPA, the requirements for which differ by state. In generally, however, becoming a CPA requires two years of work under the supervision of a CPA and an accounting degree. Most external audit employment positions require a bachelor's or a master's degree in addition to a CPA license. Excellent skills in math and computer operations are necessary as well as exceptional analytical and reasoning skills.
On average, an external auditor makes around $75,000 per year, but senior level auditors can earn over $100,000 per year. The U.S. Bureau of Labor Statistics predicts that the fields of accounting and auditing will grow over the next seven years. Those interested in pursuing a career as an external auditor will have the best chances if they have CPA certification and a Master of Business Administration (MBA) degree.