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A Beginner's Guide to Audit

Hi there. It's really been quite a while since I last posted, & I think I'd probably be doing it more often now. As most of you should already know, I've been working in the audit line for more than a year now & it's definitely amazing. In this post, I'd like to share some insights of the professional so you may widen your horizon of knowledge & widen your options for a career path.

Most of you would already know, that there are the Big 4 + 2 firms in the audit practice. They are ranked as below (you may click on the URL below the image for a link to the website).


Pricewaterhousecoopers



Ernst & Young



Deloitte



KPMG



BDO



Grant Thornton


Kindly do note, that all these firm's are international networks of practice which operate in the view of profits as separate entities in their own countries (e.g. US, UK, Malaysia).

Our work, as auditors (a.k.a. assurance providers) is with regard to the Financial Statements which comprise of the :
  1. Directors' Report
  2. Balance Sheet
  3. Income Statement
  4. Cash Flow Statement
  5. Statement of Changes in Equity
  6. Notes to the Accounts
Our role is to ensure that the Financial Statements (subject matter) are properly drawn up in accordance with the relevant reporting standards (e.g. FRS, IFRS, PERS). We have to ensure that the accounts show a true & fair view of the company. True in this context, is referring to without fraud & factual. Whereas fair refers to the unbiased condition of the subject matter. Our duty, is to actually prepare a report which is known as the Audit Report as you can see below:





An example of what we do, referring to the Balance Sheet on Cash at Bank balances. Let's say, the amount of Fixed Deposits is $160m, we shall have to confirm this amount. But how?
  • Sight and agree the amount to the bank statement
  • If figure agrees, send a bank letter to the bank
  • Receive the bank confirmation, & ensure amount is true & fair
  • Ensure proper disclosure on security placed for this amount is performed
By taking these steps, the amount is definitely true & fair and therefore shows a clear view on the company's performance. Do note though, that our work is based on materiality, a concept developed for efficiency. Our work depends on the size of the client. If the Profit before Tax figure is small, more work shall have to be done as a small Net Profit margin would mean that the shareholders would require more assurance of the figures, as a loss making company is completely different than if compared to a money making one.

Then, comes the quality control process where reviewing and leadership comes to play. Here's positioning by ranking in a firm :
  1. Managing Partner / Chairman
  2. Partner
  3. Director
  4. Principal
  5. Senior Manager
  6. Manager
  7. Assistant Manager
  8. Supervisor
  9. Senior Associate
  10. Associate
  11. Junior Associate (Assistant)
Internal auditors are different than compared to external auditors. They work for company's with the NEDS (non-executive directors), ensuring internal controls are operating effectively. Paychecks are paid by the company itself and therefore an independence threat is apparent.

Comments

  1. Genial brief and this mail helped me alot in my college assignement. Thank you for your information.

    ReplyDelete
  2. That is so true. As an author and business man, I can relate to how you said "If the Profit before Tax figure is small, more work shall have to be done as a small Net Profit margin would mean that the shareholders would require more assurance of the figures, as a loss making company is completely different than if compared to a money making one". I hope more people discover your blog because you really know what you're talking about. Can't wait to read more from you!

    ReplyDelete
  3. You can parlaу youг particulaг skіlls anԁ interests intо а ѕpecialized
    acсountіng field with some focusеd ѕtudу and eхperienсe.
    Whіlе it сan be uѕеd fοr private companу audits aѕ well, publiс company audits requiгe а mоre сomprеhensіve
    іncluѕiоn of eѵidencе anԁ testing.

    Αlthough mеaѕures werе taken following the finanсial
    sсandals to safeguaгԁ audіt inԁерenԁеnce,
    by restricting the abilitу οf auditors to оffer othеr tуpes οf ѕeгvіcе tο their auԁit clients, thеse measurеs ωеre not equаlly strісt in all countries.



    my ωeb blog ... http://www.xfire.com/blog/graig67o/4644687

    ReplyDelete

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