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independent of the activities they audit, are part of the organization they audit, and report to management. Typically, internal auditors are employees of the entity, though in some cases the function may be outsourced. The internal auditor's primary responsibility is appraising an entity's risk management strategy and practices, management (including IT) control frameworks and governance processes. They are also responsible for the internal control procedures of an organization and the prevention of fraud.
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correct and thorough appraisal of an entity's financial controls and statements. Any relationship between the external auditors and the entity, other than retention for the audit itself, must be disclosed in the external auditor's reports. These rules also prohibit the auditor from owning a stake in public clients and severely limits the types of non-audit services they can provide.
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External auditors also undertake management consulting assignments. Under statute, an external auditor can be prohibited from providing certain services to the entity they audit. This is primarily to ensure that conflicts of interest do not arise. The independence of external auditors is crucial to a
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numbers to general ledger and make inquiries of management. In compilation auditors are required to take a look at financial statement to make sure they are free of obvious misstatements and errors. An external auditor may perform a full-scope financial statement audit, a balance-sheet-only audit, an
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may be organized as LLCs or corporate entities. The organization of audit firms has been a subject of debate in recent years on account of liability issues. For example, there are rules in EU member states that more than 75% of the members of an audit firm must be qualified auditors. In India, audit
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Internal auditors who are members of a professional organization would be subject to the same code of ethics and professional code of conduct as applicable to external auditors. They differ, however, primarily in their relationship to the entities they audit. Internal auditors, though generally
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While the
Ultramares doctrine is the majority rule, (to the relief of many new and budding accountants pursuing an auditing career!) the restatement standard is preferred in several states and is growing in popularity. The foreseeability standard will not likely be widely adopted anytime soon
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The manner of appointment, the qualifications, and the format of reporting by an external auditor are defined by statute, which varies according to jurisdiction. External auditors must be members of one of the recognised professional accountancy bodies. External auditors normally address their
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Under the
Ultramares doctrine, auditors are only liable to 3rd parties who are specifically named. The Restatement Standard opens up their liability to named "classes" of individuals. The foreseeability standard puts accountants at the most risk of liability, by allowing anyone who might be
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commercial entities are appointed by an independent government body such as the
Comptroller and Auditor General. Securities and Exchange Commissions may also impose specific requirements and roles on external auditors, including strict rules to establish independence.
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CFOs, company accountants, and other employees are not provided the same luxuries of the doctrine of privity. Their material actions and statements open them (and their companies) up to liability from third parties damaged by relying on these statements.
992:
Gramling, Audrey A.; Nuhoglu, Nur Irem; Wood, David A. (September 2013). "A Descriptive Study of
Factors Associated with the Internal Audit Function Policies Having an Impact: Comparisons Between Organizations in a Developed and an Emerging Economy".
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If an external auditor detects fraud, it is their responsibility to bring it to the management's attention and consider withdrawing from the engagement if management does not take appropriate actions. Normally, external auditors review the entity's
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Auditors may be liable to 3rd parties who are damaged by making decisions based on information in audited reports. This risk of auditors' liability to third parties is limited by the doctrine of
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are the only authorized non-governmental external auditors who may perform audits and attestations on an entity's financial statements and provide reports on such audits for public review. In the
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765:(SOX) has imposed stringent requirements on external auditors in their evaluation of internal controls and financial reporting. In many countries external auditors of
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control procedures when assessing its overall internal controls. They must also investigate any material issues raised by inquiries from professional or
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The primary role of external auditors is to express an opinion on whether an entity's financial statements are free of material misstatements.
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In the USA, the external auditor also performs reviews of financial statements and compilation. In review auditors are generally required to
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The extent of liability to 3rd parties is established (in general) by 3 accepted standards: Ultramares, restatement, and foreseeability.
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attestation of internal controls over financial reporting, or other agreed-upon external audit procedures.
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Person who audits an entity's financial statements and is independent of that entity
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Discussion of the
Sarbanes-Oxley Act in relation to external auditors
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reports to the shareholders of a corporation. In the United States,
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firms can only be partnerships of qualified members of
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Typical organization standards for external auditors
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Internal and
External Audits; Comptroller's Handbook
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Internal and
External Audits; Comptrollers Handbook
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233:Constant purchasing power
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312:Amortization (business)
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436:Management discussion
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63:create a new article
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243:Fair value
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59:talk page
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322:Expenses
173:Forensic
98:a series
96:Part of
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228:Accrual
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