Overview of audit

- Audits are a cornerstone in the field of accounting, but it's not just something that Certified Public Accountants, CPAs, do. Simply put, an audit is a review of company records, accounts and physical inventories. You're checking details, and it's important to get the details right because tax dollars, government compliance, and your reputation will hang in the balance. But the process of doing this checking varies depending on the kind of audit or analysis you're doing. And there are four different kinds. There are internal audits, there's a compilation, there's a review, and there are independent audits. Let's go through each of them. Some audits, like an internal audit, are performed within a company by its own staff. That's an audit that absolutely anyone in a company can do. There are no regulations that govern how a company prepares and looks at its own records, but that doesn't mean you want just anyone to do it. You probably want someone with a finance or accounting background to prepare the company's financial documents and statements. You know, maybe. And there are other kinds of audits and analysis that must be led and be signed off on by a CPA. There's a compilation, in which an external CPA, but not necessarily an independent CPA, does the work. In other words, the CPA can do other work for that company, even if it does a compilation, but the CPA must disclose if they are not independent. And there are also review and independent audits. These are subject to stricter rules and must be performed by CPAs who are independent. In other words, the CPA who does a review or an independent audit cannot and must not do any other business with the company it is auditing. Also, both a review and an audit evaluate a company's adherence to Generally Accepted Accounting Principles, or GAP. Of the two, the independent audit has the highest standards. In addition to the high bar for an independent audit, the US Securities and Exchange Commission, the SEC, which regulates stock market trading and companies, sets the guidelines for financial statement audit requirements for public companies. As you can see, some audits follow very strict rules, and there are different levels of official compliance for different kinds of analysis and audits. But what's most important for you when thinking about audit is that, like me, you don't need to be a CPA to participate in audits. Although you will likely need to work under the direction of a CPA for a compilation, review, or certified audit. And there's good news about professional opportunities in audits too, because audits often require significant support staff to do things like inventory counts, sometimes literally counting various items in warehouses or store rooms. This is why audit presents professional opportunities. If you're looking for temporary work in accounting or finance, audit can be a strong option because audits take a lot of time, require a lot of people, but they're also usually done in a limited period of time. Audit skills also transfer to other professions including consulting, banking, and private equity, where similar projects are done under a different name, due diligence. If you're working in audit, your job is to make sure things are what they should be. If you haven't seen it, you can't verify it. Trust only your own eyes and even then, double check yourself.