As an auditor, I cant count how many times Ive heard a client say I thought that was part of the

audit.
This is usually in response to us asking them to prepare audit workpapers, schedules, reconciliations, or
even the actual financial statements. While it is not uncommon for auditors to assist their clients with
some of these requests, the auditor needs to stay ever mindful of maintaining independence, both actual
and perceived. Before we get into the issue of auditing our own work, lets take a closer look at what
independence means in relation to an audit client.
Independence consists of actual independence (independence of mind) and perceived independence
(independence in appearance). Actual independence permits the audit to be performed without being
affected by influences that compromise the auditors professional judgment and allows the auditor to act
with integrity and exercise objectivity and professional skepticism. This means the auditor cannot be part
of the clients Board, may not have a financial interest in the client, and must not serve as management or
make management decisions on behalf of the client. This would include authorizing or approving client
transactions regarding obtaining or disbursing of financial, physical, intangible, or human resources.
Perceived independence is the absence of circumstances that would cause a reasonable and informed
outside party to question the integrity, objectivity, or professional skepticism of the auditor. This means
relationships that may appear to impair the auditors objectivity when performing audit procedures are
prohibited, even if that relationship does not factually impair the auditors objectivity or impartial judgment.
The focus of the independence standards is always on the publics confidence in the amounts presented
in the financial statements and related disclosures.
When it comes to auditing, the word public in certified public accountants takes on new meaning. While
it is true that we are hired by a client to perform an audit, in essence we are being relied upon by the
public, to provide an accurate, unbiased, and completely independent opinion about the results of the
audit. Management is responsible for designing, implementing, and maintaining internal control
procedures at the company. The auditor assesses the risk of material misstatement of the clients financial
statements based on the internal control procedures that are maintained by the company. The auditor
then designs and performs the audit procedures to obtain evidence about the amounts and disclosures
listed in the statements and to ultimately express an opinion on whether the amounts listed by
management are free from material misstatement.
This leads us back to the clients I thought that was part of the audit comment. Ideally, prior to the audit
fieldwork, the client will have already reconciled the accounts and prepared schedules supporting the
amounts listed. However, this isnt always the case. Auditors often prepare schedules and reconciliations
that become part of the audit workpapers. Preparing these types of schedules alone doesnt impair the
auditors independence provided that the client takes responsibility for the results of this work. If the client
does not take responsibility for this work, then in effect, the auditor has performed managements duties
and independence is impaired. If the auditor records journal entries, makes changes to account codes or
classifications, or makes changes to clients records without the client taking responsibility for these
changes, then in essence, the auditor has made a management decision and independence is impaired.
Ultimately, the question that needs to be asked is: if the auditor reconciles the accounts, prepares the
schedules supporting the amounts, makes general ledger adjustments based on these schedules, and
then signs off as having audited this work, have they really audited the clients records or are they just
auditing their own version of the clients records?
The purpose of an audit is to provide the public and other users of financial statements with an auditors
objective, unbiased opinion about whether the clients financial statements are fairly presented in all
material respects. The auditor is obligated to use his or her professional judgment to take whatever steps
are necessary to obtain reasonable assurance that the amounts the client has listed in their financial
statements are free of material misstatement. The client is obligated to review and take responsibility for
any adjustments proposed by the auditors and is responsible for the fair presentation of the financial

statements. The auditor is responsible for rendering an opinion on those financial statements. It is only
through this process that the auditor can remain independent and avoid situations where they may be
auditing their own work.

In the past, companies often relied on accountants from their audit firms to assist in reconciling accounts,
preparing the adjusting journal entries and writing financial statements.
Small companies, in particular, often lacked the level of accounting sophistication necessary to carry out
these tasks. Relying on the audit firm often made sense from the perspective of efficiency and cost
containment.
But an increased focus on auditor independence has come about during the last decade in new
requirements by the American Institute of CPAs and a host of related regulatory guidance issued by the
Securities and Exchange Commission, the General Accounting Office and the U.S. Department of Labor.
The standards generally restrict the nonattest services such as tax or consulting services that auditors
may perform and the circumstances under which those services may be allowed. The increased
regulations serve to muddy an already often-misunderstood set of expectations.
What auditors do
The outside, independent auditor is engaged to render an opinion on whether a companys financial
statements are presented fairly, in all material respects, in accordance with financial reporting framework.
The audit provides users such as lenders and investors with an enhanced degree of confidence in the
financial statements. An audit conducted in accordance with GAASand relevant ethical requirements
enables the auditor to form that opinion.
To form the opinion, the auditor gathers appropriate and sufficient evidence and observes, tests,
compares and confirms until gaining reasonable assurance. The auditor then forms an opinion of whether
the financial statements are free of material misstatement, whether due to fraud or error.
Some of the more important auditing procedures include:
Inquiring of management and others to gain an understanding of the organization itself, its operations,
financial reporting, and known fraud or error
Evaluating and understanding the internal control system
Performing analytical procedures on expected or unexpected variances in account balances or classes
of transactions
Testing documentation supporting account balances or classes of transactions
Observing the physical inventory count
Confirming accounts receivable and other accounts with a third party

At the completion of the audit, the auditor may also offer objective advice for improving financial reporting
and internal controls to maximize a companys performance and efficiency.
What auditors dont do
For a clear picture of the role of external auditors, it helps to understand what you should not expect
auditors to do. The emphasis is on independent.
First and foremost, auditors do not take responsibility for the financial statements on which they form an
opinion. The responsibility for financial statement presentation lies squarely in the hands of the company
being audited.
Auditors are not a part of management, which means the auditor will not:
Authorize, execute or consummate transactions on behalf of a client
Prepare or make changes to source documents
Assume custody of client assets, including maintenance of bank accounts
Establish or maintain internal controls, including the performance of ongoing monitoring activities for a
client
Supervise client employees performing normal recurring activities
Report to the board of directors on behalf of management
Serve as a clients stock or escrow agent or general counsel
Sign payroll tax returns on behalf of a client
Approve vendor invoices for payment
Design a clients financial management system or make modifications to source code underlying that
system
Hire or terminate employees
This list is not all-inclusive. But, in short, the auditor may not assume the role and duties of management.
In practical terms, there are a number of tasks you should not expect your auditor to perform.
Analyze or reconcile accounts
Close the books
Locate invoices, etc., for testing
Prepare confirmations for mailing

 Select accounting policies or procedures

Prepare financial statements or footnote disclosures
Determine estimates included in financial statements
Determine restrictions of assets
Establish value of assets and liabilities
Maintain client permanent records, including loan documents, leases, contracts and other legal
documents
Prepare or maintain minutes of board of directors meetings
Establish account coding or classifications
Determine retirement plan contributions
Implement corrective action plans
Prepare an entity for audit
Your external auditor may perform some of these duties under guidelines of the American Institute of
CPAs, Department of Labor, Government Accountability Office, Securities and Exchange Commission or
Public Company Accounting Oversight Board. However, these same guidelines may preclude the auditor
from performing some of these functions.
Managements responsibilities in an audit
The words, The financial statements are the responsibility of management, appear prominently in an
auditors communications, including the audit report.
Managements responsibility is the underlying foundation on which audits are conducted. Simply put,
without management having responsibility for the financial statements, the demarcation line that
determines the auditors independence and objectivity regarding the client and the audit engagement
would not be as clear.
It is important for a companys management to understand exactly what an audit is and what an audit
does and does not do. The auditors responsibility is to express an independent, objective opinion on the
financial statements of a company. This opinion is given in accordance with auditing standards that
require the auditors to plan certain procedures and report on the results of the audit, while considering the
representations, assertions and responsibility of management for the financial statements.
As one of their required procedures, auditors ask management to communicate managements
responsibility for the financial statements to the auditor in a representation letter. The auditor concludes
the engagement by using those same words regarding managements responsibility in the first paragraph
of the auditors report.

Auditors cannot require management to do anything or to make any representation. However, to conclude
the audit with the hope of a clean unqualified opinion issued by the auditor, management has to assume
the responsibility for the financial statements.
Auditing standards are very clear that management has the following responsibilities fundamental to the
conduct of an audit:
1. To prepare and present the financial statements in accordance with an applicable financial reporting
framework, including the design, implementation and maintenance of internal controls relevant to the
preparation and presentation of financial statements that are free from material misstatements, whether
from error or fraud
2. To provide the auditor with the following information:
All records, documentation and other matters relevant to the preparation and presentation of the
financial statements
Any additional information the auditor may request from management
Unrestricted access to those within the organization if the auditor determines it necessary to obtain
audit evidence objectivity.
It is not uncommon for the auditor to make suggestions about the form and content of the financial
statements, or even assist management by drafting them, in whole or in part, based on information
provided by management. In those situations, managements responsibility for the financial statements
does not diminish or change