The Language of an Auditor

Mikaela DavisBy Mikaela Davis, CPA

Do you ever feel like your auditors are speaking Greek? If you’re part of an organization or company that has an annual audit it may seem like the team of professionals conducting the audit are speaking a foreign language, using words and phrases that may not make sense to you or your coworkers. Before your auditors arrive for the next audit, consider reviewing these commonly used terms to help you gain a better understanding of the language your auditor speaks.

Audit Engagement: An agreement between an organization and an auditor in which the auditor has been engaged to perform certain procedures related to determining whether the financial information reported by an organization is reasonably accurate.

An audit engagement involves a certain close professional service relationship. The organization will sign an engagement letter detailing the services to be provided by the auditor. The engagement includes the entire audit process and will require the auditor to learn the inner workings of the organization. It can be considered a sort of dance – there’s a lot of back and forth; give and take. Although an engagement letter might specify that the engagement is completed when an audit report is issued, the professional relationships developed should continue throughout the rest of the year – to serve as a source of information and assistance whenever the need arises.


Independence: A condition under which an auditor performs an audit engagement so that the auditor and audit firm are without influences that may compromise professional judgement.

Standards require auditors to be independent, in fact and appearance, to be able to perform an audit. Being independent allows auditors to act with integrity and exercise objectivity and professional skepticism.


Internal Controls: Process for assuring achievement of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations, and policies.

Auditors generally gain an understanding of the design of internal controls by doing a “walkthrough”, which includes selecting sample transactions and observing or reviewing evidence of control procedures. Good internal controls provide a system of checks and balances within an organization, so as to prevent errors and fraud. Organizations should strive for well documented internal control processes as well as methods to implement those processes consistently.


Fieldwork: A scheduled period of time when auditors are usually onsite at an organization’s offices for the purpose of performing audit procedures.

Audits include a lot of documentation requirements on the part of the auditor, to ensure all testing, considerations, evaluations, and assessments are documented and fully support the opinion the auditor ultimately issues on the financial statements of an organization. All of that work takes time. Generally, auditors break up audits into three phases: 1) Planning, 2) Fieldwork, and 3) Wrap-up. Planning involves preliminary reviews of financial information, discussions with management, and determination of an audit plan by the auditor. Fieldwork is the meat of the audit process; most of the detailed testing work takes place during this dedicated time when the auditor and organization personnel work closely to efficiently and effectively complete a bulk of the audit work. Wrap-up includes the resolution of pending issues, drafting of financial statements and notes, and reviews performed by various levels at the auditor’s firm.


Fraud Interviews: Required inquiries the auditor makes of management, finance, and operations personnel within an organization for the purpose of extracting information these parties may have regarding actual or suspected fraud within an organization, as well as any other information relevant to the audit process. Although the word “fraud” tends to make people shiver, these interviews should not be feared. Yes, there are certain questions that auditing standards require auditors to ask; however, most auditors also use these conversations as a way to get to the know the client, learn about changes or plans for developments of the organization, as well as a way for the auditor to get input from organization personnel that can be factored into the auditor’s plan of attack for the audit.


Generally Accepted Accounting Principles (GAAP): A collection of commonly-followed accounting rules and standards for financial reporting.

U.S. GAAP is the set of standards that dictate how the financial transactions of an organization are to be recorded and reported. These standards are primarily developed by the Financial Accounting Standards Board (FASB). Auditors are required to provide an opinion on whether the financial statements are fairly stated in accordance with an applicable financial reporting framework, most typically, U.S. GAAP. Other reporting frameworks are acceptable in certain cases, including those required by regulators.


General Ledger: Complete record of financial transactions of a company or organization.

Auditors often call this the “GL”. Auditors may often request “GL Detail” for a specific account, which includes the listing of transactions for a specified time period. This is similar to a Trial Balance, or “TB”, but a trial balance generally lists all accounts and corresponding balances for a specific date or date range. For example, a trial balance might show the amount or balance of a specific cash account as of December 31, whereas general ledger detail would show all transactions within that specific cash account for the entire day.


Materiality: An entity-specific aspect of relevance, based on the size, or magnitude, or both, of the items to which financial information relates.

The auditor expresses an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. Materiality is a quantitative standard determined by auditors as a result of risk assessment and other planning procedures. It’s the basis auditors use to determine whether an event or transaction has the potential to impact users of the financial statements.


Prepared by Client (PBC): A term used by auditors to describe anything provided to the auditor by organization personnel.

PBCs can include a schedule, workpaper, general ledger detail, etc. A PBC list, also called an audit request list, is typically provided to organization management at the beginning of the audit. This list includes a general compilation of items the auditor will need to perform the engagement.

Hopefully these explanations have helped to clarify some of the confusion associated with your organization’s audit. Regardless of the terms used, organization personnel should strive for meaningful and productive conversations with their auditors. The audit experience will be much more enjoyable when everyone is speaking the same language, even if it’s Greek!

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