A Beginner’s Guide to Audit

calculator and pencil on paper

As most of you should already know, I’ve worked in the audit line for quite some time and it’s definitely an amazing experience. In this post, I’d like to share some insights of the profession 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:

  1. PricewaterhouseCoopers
  2. Ernst & Young
  3. KPMG
  4. Deloitte
  5. BDO
  6. Grant Thornton

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. IFRSMFRSMPERS). 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 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 $160m, 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 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.

Related: Internship Experience at PwC

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 companies 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.

 

Disclaimer: This is an Opinion Article and it only reflects the views of the author and not the company or institution that may be associated with the Author. This article also does not have any intention to undermine or attack certain individuals or parties.


 Written by: Roshann Mathiahlagan  

Roshann is an ICAEW Chartered Accountant with corporate finance experience in a Fortune Global 500 company, 6 years of auditing experience in a Top 6 accounting firm and starred in a Malaysian national TV programme which aired for 3 seasons.

This article is published on ProspectsASEAN.com with the writer’s consent and originally appeared on LinkedIn. You can read it here.


Feature Image is CC0 License: Free for Commercial Use, No Attribution Needed

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