How to Find The Right Auditor

By Charles K. Trainor

In recent years, accounting fraud in America has been under intense scrutiny. Major fraud was uncovered at corporations such as Enron, Qwest, Tyco International, Adelphia, and Global Crossing. Unfortunately, school districts are not immune to this ailment.

In 2004, the New York State Comptroller’s office published a revealing audit of the Rosalyn, N.Y., school district that uncovered widespread financial abuse and manipulation of financial records. Even more disturbing, the district’s external auditor used the financial software his company had sold to the district to facilitate the cover-up. In the end, it was discovered that more than $11 million in fraudulent transactions involving 26 individuals had occurred.

The series of major corporate scandals led the federal government to enact the Sarbanes-Oxley Act (SOX), which mandates increased oversight by the boards of publicly held corporations as well as changes in audit procedures. Also addressed is the necessity of no conflict of interest between auditors, the board, and administration. Regulations also deal with board policies, internal control assessment, and financial disclosure.

Finally, the act also establishes a quasi-public entity called the Public Company Accounting Oversight Board (PCAOB), which is charged with overseeing, regulating, inspecting, and disciplining accounting firms that audit public companies.

External auditors perform audits on financial statements of companies, government entities, or organizations. They are expected to be completely independent and must present an unbiased evaluation of the audited organization’s financial condition. The external auditor’s primary role is to express an opinion on whether the financial statements are free of significant misstatements.

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