What is Audit?

Summary

This video script provides an in-depth look at audits, focusing on the role of auditors in ensuring financial accuracy for companies. It explains how audits validate financial positions for both publicly traded and privately-held companies, with firms like KPMG providing independent reviews. The script explores the dynamic and often hectic nature of audit engagements, which can span months or even years. Auditors analyze transactions, assess company strategies, and ensure financial statements are accurate. The script highlights how audits offer valuable insights into business operations, making them crucial for strategic decision-making and stakeholder trust.

Takeaways

• 😀 Audits aren't just about taxes; they are a process of validating financial positions for companies, required by regulators like the SEC for public companies.
• 😀 Audit engagements help assure stakeholders (such as investors and banks) that a company's financial reports are accurate and reliable.
• 😀 KPMG and similar firms are often hired for audits to provide an independent review of a company's operations.
• 😀 Auditors evaluate financial transactions by tracing where money comes from, where it goes, and how it is utilized throughout a company.
• 😀 An audit team for a large company might involve multiple partners, associates, and specialists, often collaborating across global locations.
• 😀 Strong communication skills and critical thinking are essential in auditing, allowing auditors to understand and assess a company's business decisions and strategy.
• 😀 Auditors need professional skepticism, verifying whether the financial statements provided by companies align with actual transactions and events.
• 😀 Audit engagements can last from a few months to a year, and the same clients are often worked with year after year, providing continuous service.
• 😀 Auditors are deeply involved with clients, sometimes setting up permanent workstations at their offices, reviewing documents and comparing financial records to actual operations.
• 😀 Audit work can be dynamic and hectic, as business changes like acquisitions, bankruptcies, or new contracts can significantly affect the work already done.
• 😀 The audit process not only ensures regulatory compliance but also provides valuable insights for companies to make informed strategic decisions for the future.

Q & A

What is the common perception of an audit, and how does it differ from the type of audits big firms perform?

Many people associate audits with IRS agents arriving unannounced to scrutinize financial documents. However, most audits performed by big firms like KPMG have nothing to do with taxes. These audits focus on validating a company's financial statements to ensure they are accurate and in compliance with regulations.

Why do publicly traded companies undergo audits?

Publicly traded companies are required by the Securities and Exchange Commission (SEC) to validate their financial positions through an audit. This ensures transparency and provides investors with confidence that the company's financial statements are accurate.

Are audits required for privately-held companies?

Although audits are not legally required for privately-held companies, they are often performed at the request of key stakeholders like banks, investors, or other interested parties to verify the accuracy of the company’s financial reports.

What is the goal of an audit for a company?

The goal of an audit is to assure stakeholders that a company's financial statements, including cash flow, balance sheets, and profit and loss statements, are accurate and free from material misstatements.

What does an auditor do during an audit engagement?

An auditor evaluates the financial transactions of a company by reviewing where money is coming from, where it's going, and how it’s being used. They check accounts receivable, vendors, acquisitions, and expenses to ensure the accuracy of the financial statements.

Why is a career in audit dynamic and what factors contribute to it?

A career in audit is dynamic because it involves analyzing a wide variety of financial operations across different sectors. The global economy and the complexity of the transactions being audited provide diverse challenges, making it a constantly evolving field.

What is involved in a typical audit team for a large company?

A typical audit team for a large company might include multiple partners, managers, senior associates, associates, and even specialists from tax or advisory practices. These teams often work across multiple locations and time zones to perform the audit.

What skills are essential for auditors to succeed in their role?

Critical thinking, self-management, and strong communication skills are essential for auditors. They must understand the business decisions behind financial transactions and apply professional skepticism to verify their accuracy.

How long does an audit engagement typically take?

An audit engagement can last anywhere from a few months to a full year, depending on the size of the company and the complexity of the project.

What are some challenges auditors face during an audit?

Auditors face challenges when unexpected events occur, such as a major contract being won or revoked, a company acquiring another, or a subsidiary going bankrupt. These changes can affect the audit and require additional adjustments to the review process.

How do audits provide insights into a company's operations?

Audits give auditors an intimate view of how a company operates. They learn the reasons behind business decisions, the financial impact those decisions have, and how the company uses its accounting services to strategize and plan for the future.