Skip to main content

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).





Kindly do note, that all these firms 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 (a.k.a. Statement of Financial Position)
  3. Income Statement (a.k.a. Statement of Comprehensive Income)
  4. Cash Flow Statement (a.k.a. Statement of Cash Flows)
  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. MFRS, IFRS). 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.
Fair refers to the unbiased condition of the subject matter.

Our duty as auditors is to form an audit opinion of the company's financial statements based on the above and prepare an audit report. You may view financial statements and audit reports of various listed companies at their respective websites (look for investor information) or in the relevant stock exchange websites (e.g. Bursa Malaysia).

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 RM668 ($160)m, we shall have to confirm this amount. But how?
  1. Sight and agree the amount to the bank statement.
  2. If figure agrees, send a bank letter to the bank.
  3. Receive the bank confirmation, & ensure amount is true & fair.
  4. Ensure proper disclosure of security placed for this amount is performed.
By taking these steps, the amount is definitely true & fair and therefore shows a clear view of 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 moneymaking one.

Then, comes the quality control process where reviewing and leadership come 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.

Hope you found this helpful. Happy auditing!

This article has been featured on ProspectsASEAN.com with permission.

Comments

Anonymous said…
Genial brief and this mail helped me alot in my college assignement. Thank you for your information.
Daniel Milstein said…
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!
Anonymous said…
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

Interesting Reads

Serve To Lead 4 Change

The only constant in life is change, and the rate of change is increasing. With today's pace of change, there is an increasing need and demand for us to embrace agility, flexibility and adaptiveness in our professional lives. What are these characteristics in actuality?
Agility Ability to move quickly and easily.Ability to think and understand quickly. Flexibility Ability to be easily modified.Ability and willingness to change or compromise. Adaptiveness Ability to adjust to new conditions.Ability to be modified for a new use or purpose. When I turned 13, I enrolled in the Royal Military College. Being an innocent young boy, I had zero expectations of the reality I was about to face for the next 4 years. Little did I know, this was a key tipping point in my life. Nevertheless, I distinctly remember my first day as a Putera or "New Boy" as we were fondly called. It was the day when the pace of change in my life accelerated evidently in contrast to everything I've experienc…

Explain Like I’m Five: Data Science

"Hello, World!" was my 1st computer program, 10 months ago as I began my journey in data science. Learning from online & offline resources, I grew exponentially as a professional to face digitalisation.

For your benefit, I’ve written 10 key-takeaways on insights I gained from being a data scientist:

1. Never too old to code, never too smart to code

Coding (a.k.a. programming) is prerequisite to be a data scientist. The good news is, learning to code is easier now than it was 1 nor 10 years ago. There’s plenty of programming languages to choose from, plus the newer ones are simpler yet feature the powerful capabilities of older complex languages. Python (most popular language) would take you just a couple of hours to grasp the basics. Heck you don’t even need a computer - I learnt Python on the SoloLearn App on my iPhone during my commutes to work. If you can afford classes to learn programming, by all means go ahead. Only ignorance is bliss, which will result in you blami…

Life Is A 4 Letter Word

Ahhh.... Life, the physical, mental, and spiritual experiences that constitute existence. Beautiful yet confusing. A good life is a main argument. And with a lil' research, I've compiled a few ways people define life in general:
Career - Studying your ass off, getting good grades, later a good job at a good company with a good paycheck, getting married, having kids and finally dying. Perhaps this is the most famous way of defining life. I find it really pretty "interesting". And the best part of this life, is that you're constantly in an unstable battle to reach financial stability. It's really a struggle most part, but I suppose that's the beauty of it. Life is difficult after all.Money - I suppose this one's really pretty popular in today's world. This one's really confusing though as there really is like two ways people look at it. Some will be like, money is everything in today's world, whereas others say money can't buy you everyth…

An Act of Faith and An Act of Gamble

Let's take a moment to stroll through your thoughts, the very first ones you had today... the particular thoughts you had when you woke up from your deep slumbering state of sleep.

Now, why did you wake up today? What is this urge that drove you out of bed?

The Japanese call this "Ikigai" which translates to a reason for being or more specifically, a reason for getting up in the morning. The French have a similar word, your "raison d’être".


This fundamental question to answer will set you on a journey for a life of meaning. The journey itself is the point, in the same way, you don't go to a musical concert or a play just to see the ending.

Ask yourself: What do you expect from life? Feel your innermost desires and compulsion for being, and why does this matter to you.

Then ponder upon this: What does life expect of you? Your ups and downs, trials and tribulations, successes and failures have led you to this unique moment in your life.

Was it only your expe…

Embracing Diversity and Cultural Differences: Choice & Chance

I fully embraced diversity and cultural differences by choice and by chance in weathering through 4 years in the Royal Military College, where about 90% of student demographics are Muslim, whereas I am a Hindu.
A choice was made when I decided to enrol at the Royal Military College. Barely a teenager at the time, I survived and did my best in the 7-day interview of which we were told that only 150 students will be enrolled from around 20,000 candidates from all around Malaysia.
By chance, I received an acceptance letter to be enrolled. Given the odds, chance had definitely favoured me in making the cut. Again by chance, I was born a Hindu – allowing me to embrace life as a non-Muslim in a Muslim majority environment.
4 years of strict upbringing, discipline and being ragged with other Malaysians is a mix of choice and chance. The different upbringing and genetics of friends exposed me to different personalities and traits. I met them by chance but made a choice to befriend them.
When…

Reflecting on feedback... Tell me, why?

All of us spend a significant amount of time working, yet strive to balance our personal lives. What if there are ways we could optimise the way we work and make our lives easier?

Reflecting on the choices I've made, a significant amount of my personal change was exemplified by actively soliciting feedback from my bosses, peers and subordinates.

In particular, having a structured approach in seeking feedback will promote clear, concise and effective observations which can help the recipient consider to improve him/herself. A structured feedback session should also include mandatory and proposed action points including next steps so their self-improvement journey continues post-feedback. A structured feedback session should optimally be performed at least on a monthly basis to foster a high-performance culture with continuous improvement (a.k.a "Kaizen").

All of us constantly provide feedback to our bosses, peers and subordinates, distinctly in each case... either direct…

HABITS: Choose your future. Choose life.

As I'm writing this, 2017 is coming to an end and soon we'll be ushering in the New Year 2018. A New Year for new beginnings and of course - New Year's resolutions.

Reflecting on the past year, I grew as an individual - physically, mentally and spiritually.

And the reasons? There are no reasons. Who needs reasons when you've got habits?

"We are what we repeatedly do. Excellence, therefore, is not an act, but a habit"
With the digital revolution, I'd like to share on my personal journey of making and breaking habits - with lifehacks and tools which you may use to your advantage too!

Firstly, start with asking the right questions to prime your mind in looking at the world in a different way, in a different future, in a different life. Josh Kaufman, the #1 bestselling business author of the Personal MBA has laid out 49 Questions to Improve Your Results:

Do I use my body optimally?
What is the quality of my current diet?Do I get enough sleep?Am I managing my en…

4 traits from a Millennial career

You've probably read an article or heard someone voicing out their opinion on the performance of Millennials (a.k.a. Gen-Y) in the workforce. Most of them share a common message, about how Millennials need soft-skills which are necessary to progress and climb the corporate ladder or survive in the world of business. Yet, year-on-year we also hear of a different theme of "Top Skills for the Year" and we flock to learn more about them... when history has again-and-again proved to all of us that the only constant in the world is change.

x
I was inspired to do a write-up based on my final slide shared during my "Why Corporate Finance?" presentation at Multimedia University (MMU), Sunway University and Brickfields Asia College (BAC - pic related). In my final slide, I had coincidentally shared on 4 traits necessary for Millennials drawn from my experience of being a Millennial myself exposed to professional working environments in Malaysia since 2008 (when I was bar…

5 Lessons from my Life

Hi there. I was recently given the opportunity to share 5 chapters of my story of life. Proceeded to write the below article.



1. Chance & Choice

Things always happen either by chance or by choice. It is by chance that you are born of a certain race, religion, skin colour and social class. Some get lucky in the genetic lottery, some do not. Tough luck, but you can make choices in your life to make things happen. Take a chance, be bold in your choices and may lady luck be in your favour.


2. Always Outnumbered, Never Outgunned

If you have principles, never break them for anyone - not even everyone at all at once. Stand by your beliefs, show strength and warmth - you will be admired. This doesn't mean being ignorant - always take advice when given, but think for yourself. It's your life.

3. Ambition, Hardwork, Destiny

A simple framework to achieving in life. Ambition is literally your mind in action, you could set a goal of achieving anything you want at this very moment - it'…

Opinion: Ride-sharing (Uber & GrabCar)

Uber/GrabCar effectively transfer "customer risk" to drivers (quality control is entirely up to the drivers and the driver alone can make and break your experience).
And also vice-versa, transfer "driver risk" to customers (they don't train drivers, do full police checks nor even consider them employees - the word contractor is used for legal reasons, that being the exemption from paying retirement benefits, social security, other "employee only" costs like health and dental benefits and also for easier termination of services).
It's a joke, the "real" Uber is about lawyers choosing the right word (in this case "contractor" instead of "employee" and "ride-sharing app" instead of "taxi company").
The "real" Uber is a myth, loss-making... I don't buy it.
A taxi company has assets being motor vehicles.
Uber does not have motor vehicles as they boldly claim (i.e. the biggest taxi company …