What is Audit?

KPMG US Careers
1 Oct 201405:41
EducationalLearning
32 Likes 10 Comments

TLDRThe script explains that audits are not just about tax day but also involve validating financial positions for companies, especially publicly traded ones. Audits provide an independent review, offering insights into business performance. Auditors critically evaluate transactions, applying professional skepticism to ensure financial accuracy. Audit engagements can last months to a year, involving a dynamic team and thorough document review. Audits are essential for strategic planning, verifying financial integrity and honoring stakeholders' obligations.

Takeaways
  • 🔍 Audits are not just about tax; they are also about validating financial positions for investors and stakeholders.
  • 📈 Publicly traded companies are legally required to undergo audits by the Securities and Exchange Commission (SEC).
  • 🏢 Privately-held companies often perform audits voluntarily to satisfy banks, investors, and other stakeholders.
  • 🤔 The goal of an audit is to provide assurance that financial statements are not materially misstated.
  • 🌐 Big four firms like KPMG are hired for their independent review capabilities in the global economy.
  • 💡 Audits offer companies valuable insights into their business performance, helping them make strategic plans for the future.
  • 👥 A typical audit team for a large company may include multiple partners, managers, and specialists from various fields working together.
  • 🧐 Auditors need strong critical thinking skills to understand business decisions and the transactions they are auditing.
  • 🕵️‍♂️ Professional skepticism is crucial for auditors to verify the accuracy of financial statements against the company's claims.
  • 📑 Audit engagements involve comparing company documents with financial statements and confirming details with external parties.
  • 📈 The duration of an audit can vary from a few months to a full year, depending on the client's size and project complexity.
  • 🔄 Audits provide a dynamic career path, especially in a changing business environment where transactions can be complex and unpredictable.
Q & A

  • What is the common misconception about audits?

    -The common misconception is that audits are always about IRS agents arriving unannounced to scrutinize financial documents, but in reality, audits are not limited to tax-related reviews and can be conducted by firms like the Big Four for various purposes.

  • Why are audits required for publicly traded companies?

    -Publicly traded companies are required by the Securities and Exchange Commission to undergo audits to validate their financial positions and assure stakeholders that their financial statements are not materially misstated.

  • Why might privately-held companies choose to perform audits even if not legally required?

    -Privately-held companies often perform audits at the request of banks, investors, and other stakeholders to provide assurance about the accuracy of their financial statements.

  • What is the role of firms like KPMG in the auditing process?

    -Firms like KPMG are often hired to perform audits because they can provide an independent review of a company's operations and financial statements.

  • How can companies benefit from an audit?

    -Companies can gain valuable insights into their business performance through audits, which can help them understand their financial health and make informed strategic decisions.

  • What does the term 'audit' mean in the context of financial reviews?

    -In the context of financial reviews, 'audit' means to evaluate the sources and uses of money, ensuring that transactions are accurately recorded and align with the company's strategy.

  • What is the typical structure of an audit team for a large company?

    -A typical audit team for a large company may include multiple partners working in various locations, managers, senior associates, associates, and specialists from tax or advisory practices offering expertise in areas like tax compliance and IT controls testing.

  • What skills are essential for an auditor to excel in their role?

    -Essential skills for an auditor include self-management, communication, critical thinking, and professional skepticism to understand business decisions and verify the accuracy of financial transactions.

  • How long does an audit engagement typically last?

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

  • How does the nature of audit work differ from advisory work in terms of client engagement?

    -Unlike advisory work, which is typically project-based, most audit clients are annuity clients, meaning the auditors work with them year after year.

  • What is the auditor's role in verifying the accuracy of a company's financial statements?

    -Auditors verify the accuracy of financial statements by comparing the company's day-to-day operational documents with their recorded financial data, ensuring that the reported figures are correct and in line with SEC filing requirements.

  • Why is the auditor's role considered important in the business world?

    -The auditor's role is important because they verify the correctness of a company's financial reporting, ensuring that obligations to stakeholders are honored, which is crucial for maintaining trust and transparency in business operations.

Outlines
00:00
🔍 Understanding the Multifaceted Nature of Audits

This paragraph discusses the common misconceptions about audits, explaining that they are not solely tax-related or unannounced IRS visits. It highlights that big four firms perform audits to validate financial positions of publicly traded companies, as mandated by the SEC, and privately-held companies often do so voluntarily for the benefit of stakeholders like banks and investors. The paragraph emphasizes the purpose of audits: to provide assurance that financial statements are not materially misstated. It also touches on the dynamic nature of an audit career, the importance of critical thinking, and the role of professional skepticism in verifying the accuracy of financial statements.

05:01
📈 The Impact and Benefits of Audit Engagements

The second paragraph delves into the strategic value of audit engagements beyond regulatory compliance. It explains how companies use audit findings to inform their future planning and ensure that their financial reporting is accurate and obligations to stakeholders are met. The paragraph underscores the critical role auditors play in verifying the correctness of company reporting and maintaining trust with investors and the SEC. It also points out that audits provide an in-depth look at business operations, offering unique insights into decision-making processes and their financial implications.

Mindmap
Keywords
💡Audit
An audit is a systematic review and evaluation of financial accounts and records to ensure accuracy and compliance with regulations. In the context of the video, audits are not just tax-related but also involve validating the financial positions of companies, especially those publicly traded, to assure stakeholders of the integrity of their financial statements. The script mentions that audits can provide valuable insights into a company's performance.
💡Big Four
The term 'Big Four' refers to the four largest professional services networks globally, which include Deloitte, PwC, EY, and KPMG. They are often hired to perform audits due to their reputation for providing independent and reliable reviews of a company's operations, as illustrated in the script where KPMG is mentioned as an example.
💡Financial Statements
Financial statements are formal records of a company's financial activities, including balance sheets, income statements, and cash flow statements. The script emphasizes the importance of audits in verifying the accuracy of these statements, which are crucial for investors and stakeholders to make informed decisions.
💡Stakeholders
Stakeholders are individuals or groups with an interest or concern in the operations and outcomes of a company. The video script explains that audits are performed to assure these stakeholders that the company's financial records are accurate and not materially misstated.
💡Professional Skepticism
Professional skepticism is an attitude of cautious doubt that auditors maintain to critically assess the information presented to them. The script describes how auditors use professional skepticism to verify the correctness of financial statements and transactions, ensuring they are not misled by the company's representations.
💡Audit Engagement
An audit engagement is the contractual agreement between an audit firm and a client to perform an audit. The script describes the process and the dynamic nature of audit engagements, which can last from a few months to a year, depending on the client's size and project complexity.
💡SEC Filing
An SEC filing refers to the documents that publicly traded companies must submit to the U.S. Securities and Exchange Commission (SEC), including their financial statements. The script mentions comparing a company's internal records with what they report in their SEC filings as part of the audit process.
💡Annuity Clients
Annuity clients are those with whom a service provider, such as an audit firm, has a recurring business relationship, typically year after year. The script explains that most audit clients are annuity clients, indicating a long-term engagement with the audit firm.
💡Critical Thinking
Critical thinking is the ability to analyze and evaluate information to form a judgment. In the script, auditors are described as needing critical thinking skills to understand the business decisions behind the transactions they audit and to determine their strategic fit within the company.
💡Transaction
A transaction refers to a business deal or event that has a financial impact on a company. The script discusses how auditors evaluate transactions to ensure they are correctly represented in the company's financial statements and to understand their benefit to the company.
💡Strategic Planning
Strategic planning is the process of defining an organization's long-term goals and actions to achieve them. The video script notes that companies often use audit findings as a basis for making strategic plans for the future, highlighting the broader impact of audits beyond regulatory compliance.
Highlights

An audit is not just about tax day, but also involves validating financial positions of companies.

Big four firms perform audits beyond tax purposes, often for banks, investors and stakeholders.

Publicly traded companies are required by SEC to have their financial positions audited.

Privately-held companies often perform audits at the request of key stakeholders.

Audits aim to assure stakeholders that financial statements are not materially misstated.

KPMG and similar firms are hired for independent review of company operations.

Audits provide companies with valuable insight into their business performance.

Auditors evaluate the flow of money through various channels in an organization.

A career in audit can be dynamic, especially in the global economy.

Audit teams for large companies may include partners, managers, and specialists from around the world.

Auditors need strong communication skills and the ability to think critically.

Auditors apply professional skepticism to verify the accuracy of financial statements.

Audit engagements can last from a few months to a full year, depending on client size and project complexity.

Audit clients are typically annuity clients, working with the same firm year after year.

Auditors spend significant time at client sites, reviewing documents and comparing to financial statements.

Auditors compare company documents to SEC filings and provide an opinion on the accuracy of statements.

Audit work can be hectic due to the dynamic and changing nature of the business environment.

Auditors gain an intimate view of how businesses operate and the financial impact of their decisions.

Audit findings are used by companies to make strategic plans for the future.

Auditors verify the correctness of company reporting and ensure obligations to stakeholders are honored.

Transcripts

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Related Tags
AuditingFinancial ReviewRegulatory ComplianceBusiness StrategyCritical ThinkingProfessional SkepticismInvestor AssuranceSEC FilingsGlobal EconomyCorporate Decisions