Understanding the Role of an Auditor for Public Companies in the U.S.

Auditors help make sure that companies tell the truth about their finances. They check financial records to ensure they are accurate and trustworthy. For public companies in the U.S., auditors have important duties set by the Sarbanes-Oxley Act (SOX) of 2002 and the Public Company Accounting Oversight Board (PCAOB).

What Does an Auditor Do?

1. Checking Financial Statements

The company’s management prepares financial statements, not the auditor. However, the auditor reviews these statements and gives an opinion on whether they are correct and follow Generally Accepted Accounting Principles (GAAP). This helps investors and others trust the company’s financial information.

2. Looking for Big Mistakes, Not Perfection

Some people think auditors make sure financial statements are 100% correct and free from fraud. This is not true. Auditors provide reasonable assurance, which means they look for big mistakes (also called material misstatements) that could mislead investors. While they check carefully, they cannot promise that no errors or fraud exist.

3. Checking the Company’s Internal Controls

For public companies, auditors must also check the company’s internal controls—the systems in place to prevent fraud and errors. This rule comes from Section 404 of the Sarbanes-Oxley Act (SOX).

• Auditors check if the internal controls work well and can prevent mistakes.
• They give an opinion on how strong these controls are. This is included in the audit report.
• Good internal controls help protect the company and its investors from fraud and financial problems.

Why Auditors Are Important

Auditors help make sure companies play fair in the financial world. Here’s why their role matters:

• Protecting Investors: Investors need honest financial reports to make smart decisions. If a company gives false financial information, investors can lose money.
• Keeping Markets Honest: Past scandals (like Enron) show that weak auditing can lead to fraud and loss of trust in businesses.
• Following the Law: Companies must follow financial rules, and auditors help them stay compliant to avoid legal trouble.

Final Thoughts

Auditors do not prepare financial statements and cannot promise there is no fraud. However, they play a key role in making sure financial reports are reliable. For public companies, following SOX rules and PCAOB guidelines helps build trust and protects investors.

Understanding what auditors do helps people make better financial decisions and trust the companies they invest in.