Traveling Auditor
A traveling auditor, often referred to simply as a “travel auditor” or “field auditor”, is an auditor who travels to various locations to conduct audits on-site. This is in contrast to auditors who work primarily from a central office and audit records that are brought to them. Traveling auditors are common in industries and companies with multiple branches, outlets, or operational sites.
Responsibilities of a Traveling Auditor:
- Field audits: The primary responsibility of a traveling auditor is to perform audits at different locations. This may include branch offices, retail outlets, factories, or any other operational sites of a business.
- Verification: On-site verification of physical assets, inventory counts, and other tangible items.
- Review of Procedures: Ensuring that local sites are following corporate procedures and guidelines. They may also evaluate the efficiency and effectiveness of operations at these sites.
- Reporting: After completing the audit, traveling auditors prepare and present their findings, often both to local management and to senior management at the company’s headquarters.
- Recommendations: Based on the findings, traveling auditors might suggest improvements, rectifications, or changes in procedures to the management.
- Staying Updated: Keeping up-to-date with the company’s policies, industry standards, and any changes in accounting and auditing standards.
- Training: Sometimes, they might be involved in training local staff about the company’s accounting procedures, best practices, and compliance requirements.
Benefits of Using a Traveling Auditor:
- Accuracy: Being on-site allows for firsthand verification of assets and processes.
- Immediate Clarification: Any discrepancies or questions that arise during the audit can be addressed immediately with local personnel.
- Better Understanding: Seeing operations in person can give auditors a clearer picture of the day-to-day functioning of a branch or unit.
- Tailored Recommendations: After observing on-ground realities, auditors can provide more customized recommendations suited to each specific location.
However, it’s worth noting that the role can be demanding due to constant travel, adjusting to different work environments, and dealing with varied sets of people across different locations. Effective communication skills, adaptability, and in-depth knowledge of the company’s operations are crucial traits for a successful traveling auditor.
Example of a Traveling Auditor
Let’s use a simple hypothetical example to illustrate the concept of trading on equity:
Prestige Enterprises Example:
Initial Scenario:
- Prestige Enterprises has total equity of $500,000.
- It earns a consistent Return on Equity (ROE) of 20%.
- Hence, its earnings (profit) from its equity: 20% of $500,000 = $100,000.
Decision to Leverage:
Prestige Enterprises decides to borrow $500,000 at an annual interest rate of 10%. The company believes it can invest this borrowed money into new projects and generate the same 20% return.
Post-borrowing Scenario:
- Earnings from the borrowed funds: 20% of $500,000 = $100,000.
- Interest payable on the borrowed funds: 10% of $500,000 = $50,000.
Overall Earnings:
- Total earnings from equity and debt: $100,000 (equity) + $100,000 (debt) = $200,000.
- After deducting the interest expense: $200,000 – $50,000 = $150,000.
Comparison:
- Earnings before leveraging (using only equity): $100,000.
- Earnings after leveraging (using equity and debt): $150,000.
Conclusion:
By trading on equity (leveraging), Prestige Enterprises increased its net earnings from $100,000 to $150,000, which is a 50% increase. However, it’s important to note that while the company enhanced its returns, it also took on more risk in the form of debt. If the return on the new projects financed by the borrowed money had been lower than 10% (the cost of the debt), the company could have faced decreased profitability or potential financial challenges.
This example simplifies several complexities for the sake of clarity. In the real world, factors like taxes (interest expenses can be tax-deductible), changing interest rates, operational risks, and the varying financial structures of companies can influence the outcomes of trading on equity.
