THE AUDITOR AND HIS WORK 1. accountancy, as a profes sion, has been legally recognized in the United States since 1896, there are many business men who are unfamiliar with the work of the auditor. Either they regard him simply as one to call upon when the un fortunate necessity arises of straightening out a tan gled set of accounts, or they employ him only when the cashier has absconded, for the purpose of finding out how much the undertaking should charge as a loss to "running expenses." It is not the intention in these pages to speak of the auditor and his work from the standpoint of the student of auditing, altho many facts and principles that would be of interest to anyone preparing for the profession will be brought out. The intention is to treat of the subject from the point of view of the busi ness man and his relation to his confidential adviser. The reader will find what advantages result from the employment of a competent reviewer of accounts. The nature of the work of the auditor will be consid ered, in order that the business man may better co operate with him in it and judge intelligently the value of the work which the auditor does for him. The business "executive should know, also, the standard practices of the profession so that he will be enabled to differentiate between the different classes of engage ments.
2. Definition of auditing.—Definitions of auditing have already been given in the volume on "The Prin ciples of Accounting." There is considerable differ ence of opinion as to whether the functions of the auditor should be circumscribed within the narrow limits which the derivation of the word would suggest. Mr. Robert H. Montgomery, C. P. A., holds to the view that the auditor is more than an analyst because the "logical development of the profession, and the increasing appreciation of the value of his work, have added to his former duties certain constructive func tions which must be fulfilled in connection with a large proportion of his engagements." Others compare the auditor to the engineer who looks for faulty and weak or insufficient construction, while still others assert that the auditor's function should not be that of try ing to find things that are incorrect, but rather that of trying to prove that the work which has been done has been accurately performed. There is considerable difference in the point of view, and the effectiveness of the audit will depend somewhat upon the attitude with which the auditor approaches his work. Under the old English Company Act, the auditor was sup posed to be responsible for the management of the office. He was expected to establish the system, or
to approve or disapprove of the system in force. The majority of auditors in America seem to have a wider conception of the duties of the auditor than is gener ally held by their confreres in Great Britain.
3. What auditing embraces.—Everyone will prob ably agree with the definition of auditing that makes it cover a systematic inspection of all books of account and subsidiary records, in order to prove the accuracy of all transactions recorded; and to trace fraudulent entries, technical errors and errors of principle. This definition also involves the criticism of inaccurate or faulty methods of account keeping, and includes the suggestion of better and more improved methods. It also embraces the interpretation of the results of the records examined, because the auditor must either state the results correctly himself or certify to or alter an interpretation of facts prepared by another.
4. The economic function of the professional audi tor.—It will probably be accepted that the auditor has a definite, economic function. When it is realized that those who are charged with keeping financial records frequently make errors, either by design, ig norance or carelessness, the necessity of an independ ent review of accounts becomes self-evident. It will also frequently happen that those who are capable of recording financial facts accurately and truthfully, are not able to compile them properly, or to present them in such a manner as will admit of intelligent com parison. The permanent employment of one quali fied to perform these functions would, in the case of many businesses, be an unjustified expense. Hence, the need and demand for an impartial review of finan cial accounts, for one purpose or another, has given rise to a class of professional men qualified to do the work. The laborer in the shop requires a foreman to oversee his work and to direct his energies. In a simi lar manner, those whose work deals with the labor of keeping accounts require not only intelligent direc tion, but also aid and assistance in a comprehensive interpretation of the net results and effects of the transactions of a business organization. If the la borer would not waste time or material or misdirect his energy, there would be no need of a superintend ent. Likewise, if bookkeepers could always be relied upon to do their work correctly, and if business men and proprietors could always be depended upon to present honest statements of business conditions, the services of the professional auditor would be unnec essary.