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External auditors conduct independent assessments of organizations' financial statements and disclosures. They confirm that financial statements do not contain errors or fraudulent activity. Companies hire external auditors to ensure financial statements and disclosures remain free of material misstatement.
External auditors can find work across many industries and types of organizations, including public companies, large privately held companies, and nonprofits. External auditors typically work with accounting and finance staff as well as senior management. They may also work with other external auditors if the company is part of a larger organization. Certified public accounting (CPA) firms usually perform external audits.
Organizations employ these professionals on a full-time basis, although some are self-employed as contractors. The Association of Certified Fraud Examiners reports the median annual salary for external auditors is $83,580 as of 2020, with professionals in the 75th percentile earning $125,000 annually.
As they gain experience, external auditors may take on more responsibility, supervising other auditors or overseeing the work of an audit team. Ideal candidates for external auditor jobs are detail-oriented, analytical, and able to work independently.
External Auditor Duties
External auditors afford businesses and organizations greater confidence regarding financial accuracy and compliance with generally accepted accounting principles (GAAP) and other accounting standards. Specialized audit engagements cover employee benefits, nonprofits, government agencies, and publicly traded companies.
After assessing a firm's financial statements, the role of the auditor is to prepare an independent opinion of their findings. Income statements, balance sheets, and cash flow statements should not include material misstatements. External audits are reports of any discrepancies resulting from fraud or error, along with recommendations for improvements. Five key job duties for external auditors include:
Planning the Audit: Qualified external auditors have a thorough understanding of clients' businesses and industries when assessing associated risks. When planning, they consider their own expertise and only accept engagements they are qualified to perform. Performing Audit Procedures: Auditors learn clients' accounting policies to assess the risk of material misstatement. By doing so, they minimize the risk of relying on inaccurate or incomplete information. These professionals assess operations and apply their findings when designing audit procedures. Evaluating Audit Results: External auditors test controls to determine whether they are effective at mitigating risks. They perform testing to determine the state of organizations' financial statements. External auditors must determine which tests to run, what the results mean, and their own judgements about material misstatements. Communicating Audit Results: External auditors ensure stakeholders understand audit results by providing a detailed report explaining findings. The report must be clear and concise, providing information for stakeholders to make informed decisions about their organizations' financial health. Documenting the Audit: External auditors document audits by including information about their processes, findings, and recommendations. These documentations are used as reference for subsequent audits.
Key Hard Skills for External Auditors
Financial Analysis: External auditors analyze financial statements to identify trends and risk factors. These professionals apply financial analysis knowledge as they assess companies' financial stability and performance. External auditors also identify potential risk areas to make recommendations for improvements. Internal Control Analysis: External auditors must be familiar with common internal control systems to assess their effectiveness. Internal controls are a major focus of external audits. External auditors must be able to identify unauthorized transactions and assess their impact on financial statements. Auditing Standards: External auditors must be familiar with generally accepted auditing standards (GAAS) and other accounting guidelines. For instance, the Sarbanes-Oxley Act of 2002 requires all public companies operating in the U.S. to comply with national GAAP for financial reporting. Research: External auditors research complex topics and issues to support their audit findings, including researching companies' financial statements to provide opinions about the statements' accuracy.
Key Soft Skills for External Auditors
Written Communication: Auditors must communicate in writing to effectively prepare reports. They convey their findings to clients through this documentation, which is used as reference for future audits. Verbal Communication: External auditors verbally communicate with clients to understand business and financial needs, ask questions pertinent to the investigation, and communicate unbiased findings and recommendations. Problem-Solving: External auditors need problem-solving skills to navigate the complications of financial assessment. They use these skills to design audit procedures and assess risks. Attention to Detail: Knowledgeable auditing professionals carefully review financial statements and other financial information. An external auditor's ability to catch small discrepancies is crucial to ensuring accurate audits. Auditors must scrutinize details when reviewing documentation, interviewing management, and observing processes.
External Auditor Areas of Expertise
Organizations may work with external auditors who specialize in specific fields or industries. For example, a healthcare organization may hire an external auditor with experience in the healthcare industry. Areas of expertise external auditors pursue include financial statement audits, operational audits, and compliance audits.
Financial statement auditors review organizations' financial statements to confirm compliance with GAAP. This process typically involves analyzing financial records, testing internal controls, and interviewing relevant personnel.
Successful financial statement auditors have strong analytical and critical thinking skills with a thorough understanding of accounting best practices. Many financial statement auditors work for public accounting firms, but they can also find work within large organizations.
Entry-level financial statement auditors typically work on a team to review financial statements. Senior professionals in this role may lead a team of auditors or manage a client portfolio. Financial statement auditors typically report to a manager or partner.
Operational auditing evaluates organizations' internal controls, processes, and procedures. Operational auditors typically review financial statements, accounting records, and other financial data. They may also interview and observe employees to gather information about organizations' operations.
Operational auditors should have experience in accounting and auditing. They also need strong analytical and problem-solving skills. Operational auditors usually work independently, sometimes traveling to different organizations to conduct audits.
An entry-level operational auditor may audit small organizations or departments within larger organizations. A senior professional in this role may lead a team of auditors and oversee the audit process for large organizations. Operational auditors report to a manager or director of auditing.
Compliance auditing duties vary based on the nature of the audit. However, the primary objectives are typically verifying organizations' compliance with regulations and internal policies as well as reporting noncompliance. These professionals also develop recommendations for corrective action.
Relevant skills for compliance auditing include communication, research, and attention to detail. Work environments for compliance auditors include organizations in highly regulated industries, such as healthcare, finance, and government.
Duties can include reviewing organizations' compliance with specific regulations, such as the HIPAA Privacy Rule or the Sarbanes-Oxley Act. Compliance auditors typically report to organizations' compliance officers or chief financial officers.
How to Become an External Auditor
Launching an external auditor career requires candidates to complete a bachelor's degree in accounting or a related field, which typically takes four years of full-time study. Some organizations require external auditors to earn a master's degree in accounting and become a certified public accountant (CPA), which can take an additional 1-2 years of full-time study.
Prospective external auditors can also pursue other certifications to verify their skills, including credentials like certified fraud examiner and certified internal auditor. Overall, becoming an external auditor typically takes 4-6 years, although this timeline varies based on education and professional background.
Duties for entry-level external auditors usually include conducting audits under the supervision of a senior auditor, while senior-level professionals often oversee the entire audit process.
External Auditor Career Outlook
With the increasing complexity of financial reporting, organizations continue to rely on external auditors to assure regulatory compliance. As a result, demand for external auditors remains stable.
The U.S. Bureau of Labor Statistics (BLS) projects accountant and auditor jobs to grow 7% between 2020 and 2030. The BLS also reports the median annual salary for auditors is $77,250 as of 2021, higher than the national median salary. Pay varies based on location, experience, industry, and specialization.
Career Spotlight: Colin Smith, CPA
Can you explain the difference between an external auditor and an internal auditor?
An external auditor is primarily focused on the financial performance of the company they're auditing and is tasked with providing reasonable assurance that a company or entity's financial statements are free from material misstatements. Their primary stakeholders are the investors/owners and creditors of the company they're auditing. An external auditor's job involves performing inquiries and analysis, tests, and other procedures to support the conclusion that the financial statements are free from material error or fraud.
Internal auditors have much more of an operational focus and are tasked with evaluating and assessing whether the company's processes, systems, controls, and technology are functioning as intended and identifying organizational risk. Their primary stakeholders are the company's management and board of directors, but their work oftentimes supports and complements an external auditor's work. Even though the nature and objectives of an internal audit may vary from that of an external auditor, they often perform many of the same tasks and procedures as an external auditor.
Tell us about the busy seasons for auditors. What time of year is most pressing?
An auditor's "busy season" is usually the first 2-3 months immediately after the client's fiscal year, which is when most financial statements are required to be filed. Most companies follow a calendar year, so busy season for most auditors is January-March of each year. For external auditors of public companies, quarterly filing deadlines also tend to create a few busy weeks every April, July, and October.
You've spent over a decade in public accounting. How long were you an external auditor? When did you move into your current role, and was this transition difficult?
I worked exclusively as an external auditor for 6+ years before moving on to accounting advisory, where I would often support audit teams with acquisitions or complex technical accounting matters for 3-4 months out of the year, so I've probably worked as an auditor for 8+ years in total. The transition into financial accounting advisory (my current role) definitely came with a learning curve, but my background as an external auditor served as the ideal foundation, as it gave me a well-rounded understanding of financial accounting and reporting.
How does your experience as an external auditor help you as an accountant? How do you interact with auditors now?
Working as an external auditor really forced me to understand my clients' accounting processes and learn how to verify that their calculations, estimates, and entries were correct. It also helped me hone my professional writing skills, which are hugely underrated in the accounting industry. Most accountants can master the debits and credits after enough time, but being able to clearly articulate and explain accounting positions in a workpaper, memo, policy document, or report takes a certain level of skill that's hard to develop if you haven't worked as an auditor before.
Now that I work primarily in accounting advisory, my job is to support a company's accounting team with satisfying external audit requests and assisting with complex technical accounting analysis. Having worked as an external auditor for so many years, I understand the quality standards that external auditors expect and can help my clients with meeting those expectations.
What did a typical day as an external auditor look like for you? What do you see external auditors doing now that may be different?
Life as an external auditor could be pretty chaotic at times, but that's also what makes it a good environment to learn and develop.
It was common to have multiple projects or workstreams with varying due dates going on at the same time, so every day really was a little different. Some days I could have 5-6 hours of meetings with different clients and be taking tons of notes and scrambling back and forth, while others could be spent mostly at my computer performing some audit tests or documenting something in a memo. Aside from any work that I had planned out for the day, I usually had several check-ins and impromptu chats with some of the seniors or managers I was working with, and it was common to have to shift gears to help out in another area.
Today, I think external auditors do many of the same things, although technology probably makes some things a bit easier. With the prevalence of remote work and videoconferencing technology, it's much easier and faster to set up a virtual meeting with your clients than it was to have to plan out a site visit or meet them for lunch. Audit tools and technology certainly make certain procedures more efficient, but there's also opportunity for it to cause more headaches.
What kinds of education would you recommend people should seek to become an external auditor? Are there certifications beyond degrees they should pursue?
If you want to work as an auditor, then you should plan to get either an undergrad (or master's) degree in accounting and at least 150 semester hours, which most states require in order to take the CPA exam. Given how specialized and rules-based accounting is, most firms won't hire you unless you have an accounting education and are eligible to get your CPA license, which is considered the gold standard in public accounting.
If you plan to work as an internal auditor, you may also want to consider getting the certified internal auditor (CIA) license, which will help distinguish you from your peers in the profession.
Colin Smith is a CPA and accounting consultant specializing in financial accounting and reporting. Colin spent most of his 14+-year career with Big Four firms and recently started his own consulting practice, where he assists public and private companies with their most challenging financial accounting and reporting issues.
Questions About the External Auditor Job Description
What are the duties and responsibilities of an external auditor?
External auditors examine organizations' financial statements to assess how accurately the statements represent these organizations' compliance with GAAP standards and other financial best practices.
What are the qualifications of an external auditor?
While a universally defined set of qualifications does not yet exist for external auditors, successful candidates typically have at least a bachelor's degree in accounting or a related field and accounting experience with the kinds of organizations they audit.
Who hires an external auditor?
Companies hire external auditors to provide objective opinions about their financial statements to ensure they are free from material misstatement. Firms engage these accounting specialists to assess organizations' compliance with GAAP, regulations, and internal policies.
Is external audit a good career?
Because organizations must constantly ensure they are financially compliant, auditors are in demand. The BLS projects 7% growth for accountant and auditor jobs — on par with the national growth projection for all jobs. The BLS also shows that accountants and auditors earn higher-than-average salaries.
What is the difference between internal and external auditors?
External auditors provide independent assessments to the organizations they audit, while internal auditors educate leadership regarding how businesses can improve financial operations and performance. Both accounting specialists commonly evaluate accounting transactions and financial statements to ensure accuracy and compliance with regulatory standards.
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