Accounting Science

The Role of the Accountant in Audit: The cornerstone of a successful external audit process

Posted by

mariam elghandour

March 12, 2025

On February 18, 2025

The Role of the Accountant in Audit is pivotal in preparing for an external audit. The Role of the Accountant in Audit includes preparing the financial statements and ensuring the accuracy and completeness of the financial information presented to the external auditor.

The Role of the Accountant in Audit is not limited to recording accounting entries; it also involves collaborating with the external auditor and facilitating their work. In this article, we will discuss the Role of the Accountant in Audit in preparing for an external audit, define their key responsibilities, and provide practical guidance on how to prepare effectively for an external audit, emphasizing the importance of collaboration between the accountant and the external auditor to ensure the success of the audit process.

What is an External Audit?

An external audit is an independent and objective examination of an entity’s financial statements, performed by a qualified and licensed external auditor. The Role of the Accountant in Audit is crucial in ensuring that financial records are accurate and well-organized before the audit begins. Its purpose is to express a professional opinion on whether these statements fairly present the entity’s financial position, results of operations, and cash flows in accordance with specified accounting standards, such as International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP). The Role of the Accountant in Audit also involves collaborating with the external auditor, providing necessary documentation, and addressing any inquiries to facilitate a smooth and efficient audit process.

Importance of Preparing for an External Audit:

Ensuring a Smooth and Efficient Audit Process: Good preparation helps facilitate the work of the external auditor, saving time and effort, as the auditor finds all information and documents readily available and organized.
Reducing the Risk of Errors: Good preparation helps in detecting and correcting errors in the financial statements before the arrival of the external auditor, reducing the likelihood of material misstatements in the financial data.
Enhancing the Credibility of the Financial Statements: Good preparation enhances the credibility of the financial statements and demonstrates the entity’s commitment to transparency and accountability.
Obtaining a Positive Audit Report: Good preparation contributes to the entity obtaining an unqualified (clean) audit report from the external auditor, which enhances the confidence of investors and creditors.
Avoiding Problems with Regulatory Bodies: Compliance with audit requirements helps avoid any problems or violations with regulatory bodies and reduces the risk of fines and penalties.
Improving Internal Control Systems: The process of preparing for an external audit helps identify weaknesses in internal control systems, providing an opportunity to improve and strengthen them.

The Role of the Accountant in Audit:

The Role of the Accountant in Audit involves:

Preparing Financial Statements: The Role of the Accountant in Audit includes preparing the financial statements (statement of financial position, statement of income, statement of other comprehensive income, statement of changes in equity, statement of cash flows) in accordance with IFRS or other applicable accounting standards. The Role of the Accountant in Audit requires ensuring that the financial statements are complete, accurate, and reflect the financial reality of the entity. Additionally, the Role of the Accountant in Audit involves verifying that all financial data is properly documented and readily available for the external auditor’s review.
Preparing Disclosures Accompanying the Financial Statements: The Role of the Accountant in Audit includes preparing disclosures that accompany the financial statements. These disclosures provide explanations of the accounting policies used, additional details about the items in the financial statements, and any other relevant information necessary for a proper understanding of the financial statements. The Role of the Accountant in Audit ensures that these disclosures are clear, accurate, and comply with IFRS or other applicable accounting standards, helping to enhance transparency and support the audit process.
Gathering and Organizing Supporting Documents: The Role of the Accountant in Audit includes gathering and organizing all documents supporting the financial transactions recorded in the books, such as invoices, receipts, and contracts. The Role of the Accountant in Audit requires ensuring that these documents are complete, well-organized, and readily available to the external auditor. By fulfilling this responsibility, the Role of the Accountant in Audit helps streamline the audit process, facilitate verification, and enhance the credibility of the financial statements.
Preparing Reconciliations and Analyses: The accountant must prepare necessary reconciliations and analyses for certain accounts, such as inventory reconciliations and provisions for doubtful debts. They must also prepare analyses of key accounts, such as analyses of accounts receivable and payable, to provide additional explanations about the components of these accounts.
Collaborating with the External Auditor: The accountant must fully cooperate with the external auditor and provide them with all the information and documents they request. This includes responding to the auditor’s inquiries and providing necessary clarifications.
Responding to all Inquiries from the External Auditor: Responses should be clear, accurate, and timely. The accountant should be prepared to provide a detailed explanation of any item in the financial statements.
Correcting Any Errors: Any errors discovered in the financial statements or accounting records during the audit process must be corrected. All corrections should be properly documented and disclosed.
Reviewing the Draft Financial Statements and the Auditor’s Report: This review, before final approval, ensures accuracy and completeness.
Facilitating the Auditor’s work: The Accountant should do so by providing a suitable work environment, and dedicating sufficient time for collaboration.
Learning from the Auditor’s Feedback: The accountant should utilize the feedback and recommendations of the external auditor to improve the accounting system and the financial reporting process.

Practical Steps to Prepare for an External Audit:

Communicate with the External Auditor: Communicate with the external auditor early on to discuss the audit plan and timelines and identify the required information and documents. This communication helps build a good professional relationship with the auditor and facilitates the audit process.
Review Accounting Policies and Procedures: Review the accounting policies and procedures followed by the entity to ensure that they are in line with IFRS and best practices. Any changes or updates to these policies and procedures should be documented.
Close the Books and Prepare a Trial Balance: Close the books at the end of the financial period and prepare a trial balance to ensure the accounts are balanced and the balances are accurate before the audit process begins.
Perform Year-End Adjustments: Perform necessary year-end adjustments to adjust the balances of some accounts, such as inventory, depreciation, and doubtful debt adjustments. These adjustments ensure that the financial statements accurately reflect the financial reality of the entity.
Prepare Financial Statements and Disclosures: Prepare the financial statements and accompanying disclosures in accordance with IFRS. The financial statements must be complete, accurate, and supported by supporting documents.
Gather and Organize Supporting Documents: Gather and organize all documents supporting the financial transactions recorded in the books, such as invoices, receipts, and contracts. These documents should be readily available to the external auditor.
Prepare Analyses of Key Accounts: Prepare analyses of key accounts, such as accounts receivable, payable, and inventory, to provide additional explanations about the components of these accounts and facilitate the auditor’s work.
Review the Financial Statements: Carefully review the financial statements to ensure their accuracy and completeness before submitting them to the external auditor. An internal review should be conducted to ensure that the financial statements are free from material errors.
Cooperate with the External Auditor During the Audit: Fully cooperate with the external auditor, answer all their inquiries, and provide any additional information or documents they request. The accountant should be available to respond to the auditor’s inquiries and provide necessary clarifications.
Address Any Feedback or Recommendations from the External Auditor: Address any feedback or recommendations provided by the external auditor regarding the financial statements or the internal control system. All corrective actions taken should be documented.

Importance of Collaboration Between the Accountant and the External Auditor:

Effective collaboration between the accountant and the external auditor is essential for the success of the audit process. An atmosphere of trust and mutual respect should prevail between the two parties. This can be achieved through:

Open and Honest Communication: The accountant should be open and honest with the external auditor regarding all matters related to the financial statements and provide them with all the required information transparently.
Prompt Response to Auditor Requests: The accountant should respond promptly to requests from the external auditor for information and documents and provide the necessary support to them during the audit process.
Providing Clear Explanations: The accountant should provide clear explanations for any inquiries or questions from the external auditor and explain the accounting policies used in detail.
Working as a Team: The accountant and the external auditor should work together as a team to achieve a common goal, which is to ensure the accuracy and fairness of the financial statements. The two parties should cooperate constructively to resolve any disagreements or problems that may arise during the audit process.

Responsibilities of the External Auditor:

Obtain a sufficient understanding of the entity, its environment, and its internal control system to assess the risks of material misstatement in the financial statements.
Design and perform audit procedures appropriate to address the assessed risks.
Obtain sufficient appropriate audit evidence to support their opinion on the financial statements.
Evaluate the adequacy and appropriateness of the disclosures in the financial statements.
Express an independent and objective professional opinion on the fairness of the financial statements in the audit report.
Comply with ethical codes of conduct and generally accepted auditing standards.
Maintain the confidentiality of information obtained during the audit process.

Role of Audit Committees in Overseeing the External Audit Process:

Audit committees play an important role in overseeing the external audit process, including:

Selecting and appointing the external auditor.
Reviewing the scope of the external auditor’s work and the audit plan.
Discussing the audit findings with the external auditor.
Ensuring the independence of the external auditor.
Reviewing the financial statements before they are approved by the board of directors.
Ensuring the company’s compliance with accounting standards and relevant laws and regulations.

Auditing Profession Ethics:

External auditors must adhere to the highest standards of ethical conduct when performing their work. The most important principles of auditing ethics include:

Independence: The external auditor must be independent of the entity they are auditing and must not have any financial or personal interests that could affect their objectivity.
Integrity: The external auditor must act with integrity and honesty in all their work.
Objectivity: The external auditor must express their opinion impartially and objectively, without any bias or influence from any party.
Professional Competence and Due Care: The external auditor must possess the necessary skills and knowledge to perform their work competently and must exercise due professional care when planning and performing the audit.
Confidentiality: The external auditor must maintain the confidentiality of the information they obtain during the audit process.
Professional Behavior: The external auditor must behave in a professional manner that maintains the reputation of the auditing profession.

Types of Audit Evidence:

The external auditor gathers various types of audit evidence to support their opinion on the financial statements, including:

Physical Examination: Examining tangible assets, such as inventory and machinery.
Confirmations: Obtaining written confirmations from external parties, such as customers, suppliers, and banks.
Documentation: Examining documents and records, such as invoices, contracts, and bank statements.
Observation: Watching a procedure or process being performed by others.
Inquiry: Asking questions of management and employees of the entity.
Recalculation: Checking the mathematical accuracy of documents and records.
Reperformance: Independently performing procedures or controls that were originally performed as part of the entity’s internal control.
Analytical Procedures: Evaluating financial information by analyzing plausible relationships among both financial and non-financial data.

The Role of Technology in Facilitating the Audit Process:

Accounting software, Enterprise Resource Planning (ERP) systems, and data analytics tools help facilitate the audit process by:

Automating Accounting Processes: Reduces human errors and improves the accuracy of financial data.
Providing a Clear Audit Trail: All financial transactions are recorded in the system, making it easier for the external auditor to track and review them.
Generating Various Financial Reports: Helps in preparing financial statements and other financial reports quickly and easily.
Improving the Efficiency of the Audit Process: Saves time and effort for both the accountant and the external auditor.
Using Data Analytics Tools: The external auditor can use data analytics tools to detect unusual patterns and trends in financial data.

Common Mistakes Accountants Should Avoid:

Not documenting accounting policies and procedures.
Inadequate internal control system.
Not providing clear explanations for the auditor’s inquiries.
Not providing all required information and documents to the auditor.
Not carefully reviewing the financial statements before submitting them to the auditor.
Not taking advantage of the external auditor’s feedback and recommendations.
Not keeping up with updates in accounting standards.

Tips for Accountants to Ensure a Successful Audit Process:

Start Preparing Early: Don’t wait until the last minute to start preparing for the external audit. Start the preparation process early to ensure that all tasks are completed on time.
Understand the External Auditor’s Requirements: Communicate with the external auditor to understand their expectations and needs, and ask them for a detailed list of the information and documents they will need.
Organize Your Work: Keep accurate and organized accounting records, and document all accounting policies and procedures followed by the entity.
Be Prepared to Answer Questions: Anticipate the questions the external auditor may ask and be prepared to answer them clearly and accurately. You should be able to explain all items in the financial statements and provide supporting evidence.
Be Cooperative and Transparent: Cooperate fully with the external auditor and be transparent in all your dealings with them. Do not attempt to hide any information or mislead the auditor.
Learn from Your Mistakes: Take advantage of the external auditor’s feedback and recommendations to improve your accounting system and financial reporting process. Consider the audit an opportunity to learn and improve performance.
Maintain a Good Professional Relationship with the Auditor: Remember that the external auditor is not an enemy, but a partner who helps you improve the quality and reliability of your financial statements.
Impact of external audit on corporate governance: External audit contributes to the strengthening of corporate governance through:
- Enhancing the management accountability: external audit helps in holding management accountable of their performance by providing an independent and objective evaluation of financial reports.
- Enhancing Transparency: External audit enhances financial reporting transparency, which helps investors, and other stakeholders, to understand the company’s performance and financial position in a better way.
- Enhancing Confidence in Financial Reports: External Audit results in increasing the confidence of investors, and creditors, in the financial information provided by the entity.
- Reducing the risk of fraud: External audit contributes to detecting, and preventing fraud, by examining the financial records and evaluating the internal control systems.
- Improving the efficiency of the company’s operations: The external auditor may provide recommendations to enhance the efficiency and effectiveness of the company’s operations, including the internal control system.

The Future of External Auditing:

The auditing profession is undergoing rapid changes as a result of ongoing technological developments, such as artificial intelligence, machine learning, and big data analytics. These developments are expected to:

Increase Audit Automation: Many routine audit tasks will become automated, saving auditors time and allowing them to focus on more complex tasks.
Intensify the Use of Data Analytics Tools: Data analytics tools will become an integral part of the audit process, helping auditors analyze large amounts of financial data more efficiently and effectively.
Emergence of New Forms of Audit Evidence: As companies increasingly use technology, auditors will need to evaluate new forms of audit evidence, such as digital data stored in cloud systems.
Increased Focus on Emerging Risks: Auditors will need to assess emerging risks, such as cybersecurity risks and climate change risks, and their impact on financial statements.
Development of Auditor Skills: Auditors will need to develop new skills in technology and data analysis to keep pace with developments in the auditing profession.

Conclusion:

The Role of the Accountant in Audit is essential in the audit process and the entity receiving a positive audit report. By understanding their responsibilities, following practical steps to prepare effectively for an external audit, and collaborating with the external auditor, the Role of the Accountant in Audit can significantly contribute to enhancing the credibility of the financial statements and improving the quality of financial reporting.

Thorough preparation for an external audit helps build trust with stakeholders, enhances the company’s reputation, and avoids problems with regulatory bodies. Finally, technology is playing an increasingly important role in facilitating the audit process and improving its efficiency, and the Role of the Accountant in Audit includes leveraging these tools to enhance their role and ensure the accuracy and reliability of the financial statements. The external auditor also plays an important role in evaluating the company’s compliance with IFRS, and the Role of the Accountant in Audit requires full cooperation with them to achieve this goal.