How to Become an Auditor
Becoming an auditor is a process that spans quite a few years of your life. First comes the awesome educational requirement. Then you have to pass the Uniform CPA Examination. Depending on the state in which you take the CPA exam, you may have to fulfill an experience requirement before you can apply for your CPA license. After you have that license, you need to find a job!
Getting the education to be an auditor
Most people interested in accounting or auditing major in business. To earn a business degree, you’re required to take a certain number of classes in a variety of disciplines, such as economics and finance. But if you’re thinking about doing accounting or auditing work for businesses that don’t directly employ you, you have to be very careful about the classes you take. You can’t sit for the Uniform CPA Exam until you’ve completed all the required course work. In most states (40 as of this writing), students must take an extra year of accounting- and auditing-related classes, such as Advanced Financial Accounting and Advanced Auditing in addition to the standard four years of course work required for a bachelor’s degree.
Many CPA candidates piggyback the extra classes into a Masters in Business Administration (MBA) because they’re usually halfway to that degree after finishing up the additional coursework.
Make sure you understand exactly what classes you need to take in order to sit for the CPA exam in your state. Your college adviser should be able to help you.
Taking the CPA exam
After you satisfy all the educational requirements, you’re ready to take the CPA exam. The American Institute of Certified Public Accountants (AICPA) writes and scores the exam. The test includes a mix of multiple choice and simulation questions, which are case studies that you research and provide a write-up for based on the question’s criteria.
The four-part Uniform CPA Exam covers these areas:
Auditing and Attestation (AUD): Auditing covers the principle tasks associated with the job; attestation is an engagement where you issue a report on a subject such as break-even analysis.
Business Environment and Concepts (BEC): This part of the exam covers general business transactions. For example, you must know the differences between a sole proprietorship and a corporation, or what constitutes a fiscal year (ending on the last day of any month) versus a calendar year-end (ending on the last day of December).
Financial Accounting and Reporting (FAR): This part of the exam is all about generally accepted accounting principles (GAAP) for businesses, governmental entities, and nonprofit organizations.
Regulation (REG): Federal taxation, business law and ethics, and your professional and legal responsibilities all come into play in this part of the exam. For example, you have the responsibility to possess both the education and experience required for each audit prior to working on the audit.
Accounting Glossary
accounting equation
The equation Assets = Liabilities + Equity, which demonstrates the two-sided nature of accounting and is useful for explaining the concept of double-entry accounting (or double-entry bookkeeping).
Accounting Glossary
accounting period
The time period for which financial information is being tracked in a business, such as monthly, quarterly, or annually.
Accounting Glossary
accounts receivable
An account that records the amounts that customers owe to a business.
Accounting Glossary
adjusting entry
A correction made to a bookkeeping account that adjusts for accounting errors or other necessary changes at the end of the accounting period.
Accounting Glossary
cash flows
Used to describe the source or sources of cash or how cash is used.
Accounting Glossary
Chart of Accounts
A list of all the accounts used by a business, including what types of transactions go into each account.
Accounting Glossary
debit
An accounting entry that increases an asset or expense account, and decreases a liability or income account.
Accounting Glossary
dividends
A portion of a company’s profits paid by share of common stock on a quarterly or annual basis.
Accounting Glossary
FASB
Financial Accounting Standards Board. FASB is the highest-ranking authority in the private (non-government) sector of the U.S. for making pronouncements on GAAP and for keeping accounting standards up-to-date.
Accounting Glossary
Federal Unemployment Tax
In the U.S., the fund that used to be known simply as Unemployment. Employers contribute to the fund, and states also collect taxes to fill their unemployment fund reserves. (The acronym FUTA means Federal Unemployment Tax Act.)
Accounting Glossary
fidelity bonds
A type of insurance — typically carried by employers for their employees — that helps guard against theft and reduce the risk of loss.
Accounting Glossary
FIFO
First-in, first-out. A method for costs of goods sold in which a business charges out product costs to cost of goods sold expense in the chronological order in which the goods were acquired.
Accounting Glossary
fungible
Describes a product that is interchangeable and virtually indistinguishable from another product.
Accounting Glossary
General Ledger
A summary of all of a business’s accounts and transactions.
Accounting Glossary
IASB
International Accounting Standards Board. The IASB (based in London) is the main authoritative accounting standards setter outside the U.S.
Accounting Glossary
Journals
The location in which bookkeepers keep records (in chronological order) of daily company transactions.
Accounting Glossary
LIFO
Last-in, first-out. A method for costs of goods sold that selects the last item you purchased first, and then works backward until you have the total cost for the total number of units sold during the period.
Accounting Glossary
LLP
Limited liability partnership. A legal structure that state laws offer to qualified professionals in which all the partners have limited liability.
Accounting Glossary
PC
Professional corporation. A legal structure that state laws offer to qualified professionals who otherwise would have to operate as an unlimited partnership liability.
Accounting Glossary
petty cash
A cash account that businesses keep on hand for unexpected expenses.
Accounting Glossary
revenue
Monies that are collected in the process of selling a company’s goods and services.
Accounting Glossary
salvage value
The amount that an asset is worth after it has been fully depreciated.
Accounting Glossary
statement of cash flows
A financial statement that summarizes a business’s cash inflows and outflows during an accounting period.
Accounting Glossary
transactions
Economic exchanges between a business or other entity and the parties with which the entity interacts and makes deals.
Accounting Glossary
worker’s compensation insurance
A type of insurance carried by employers that covers its employees in case they are injured on the job.
