Activities and Responsibilities: The audit department's primary responsibility is to review and issue professional opinions on clients' financial statements, typically the year-end financial statements required by the Securities and Exchange Commission. However, since not all organizations come under the SEC's jurisdiction, other types of audits, such as compliance audits, audits for specific government agencies, or audits for privately held companies, are sometimes performed instead. Professional opinions are also rendered on annual reports given to shareholders and potential investors.
Performance of audits is controlled to a large degree by specific professional and industry guidelines, Professional standards-specifically, Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAAS)-determine for the public accounting industry and auditors how to account for various transactions. Professional boards update the body of accounting theory and establish standards of ethics for the profession. These pronouncements are very much in use in audit practice, and signed audit reports attest to the fact that the audit has been performed in accordance with both GAAP and GAAS.
Before the audit begins, the auditor-client relationship must be formally established. Many client relationships are long-standing ones, but generating of new business is an ongoing process that is vital to a firm's success. Firms constantly vie with each other for large audit accounts. However, direct client solicitation is prohibited in public accounting. Upon invitation by clients, competing auditing firms prepare and submit extensive proposals outlining the services their firm can offer and the fees involved. As mentioned previously, responsibility for generating new business rests with the firm's partners. A good deal of business is brought in through contacts with industry executives.
Once the client relationship has been established, the audit planning process begins. Audit planning is extensive with new clients. It begins with reviewing available documentation, such as the previous years' financial statements, to familiarize the auditors with the client's operations and financial position. The orientation process might also include physical inspection of the client's facilities, interviews with key personnel, and conferences with predecessor auditors (upon client's approval). While auditing to a large extent confines itself to client accounting records and financial statements, anything having a material or significant effect on the financial statements is taken into consideration. Thus, auditing includes a comprehensive review of a firm's operations and procedures, in addition to review of its accounting records.
For already established client relationships, audit planning involves reviewing financial statements and audit work papers of prior years, plus listing any developments since last year's audit that have had an effect on this year's financial statements. Typically, interim audits or auditor reviews are performed mid-year to keep auditors in touch with client operations.
Audits begin before the client fiscal year ends, sometimes months in advance. Planning the audit involves specifying the type and amount of work to be performed, its timing, and the size and composition of the audit team. Typically, managers plan audit engagements with the assistance of senior auditors, although large audit engagements may require the efforts of a large planning team composed of partners, managers, and senior staff.
Based on pre-audit investigation, the manager delineates the amount and type of work to be done. Not every accounting item or transaction is audited. Which items will be audited is decided by sophisticated quantitative methods, taking into consideration budget constraints and need to ascertain the fairness of the financial statements. Audit planning cannot be haphazard; not only must sampling techniques be rigorously followed, but planning must be realistic and efficient so that the engagement is completed at or under budget, as fees are based on billable hours.
After the planning process is completed, the manager composes and sends an "engagement" letter to the client, outlining fees and what financial statements will be audited. This serves as the contract formalizing the audit relationship. Prior to the audit's commencement, the partner or the manager discusses the plan with the client to find out if there are any special considerations of which the auditors should be aware. Procedural information, such as the location of the various records and documents to be audited, is also covered.
Once the groundwork has been established, field work or actual auditing begins at the client's location. For large accounts, the partner in charge closely supervises progress, keeps in contact with client personnel, and reviews daily findings with the audit manager. For small accounts partners generally communicate less with the client, reviewing results only at the end.
Audit responsibilities vary according to staff classification. Junior auditors, often after having completed an audit training program, perform the bulk of the stereotypical auditing duties: footing or adding columns of numbers, counting inventory, and constructing bank reconciliation statements. Thus, as a junior auditor you would work with the less complicated accounts and procedures. Other duties include counting cash, verifying receivables, and photocopying work papers and documents. Junior staff has no supervisory responsibilities and perform their duties under the authority of senior supervisors.
The senior audit position also performs a great deal of audit work, in addition to supervising junior auditors. Depending on the amount of experience, the position carries a substantial amount of responsibility for actually conducting the audit. The senior auditor reviews junior work papers, deals with audit and personnel problems as they arise, and confers with client management on any problems affecting the progress of the audit. When an engagement is small or generates relatively low fees, the senior auditor may supervise the entire audit, and have only completed work reviewed by audit managers or partners.
A senior auditor is commonly promoted to the position of audit manager after four to six years experience. This position is responsible for the overall functioning of the audit, for performing the more complex auditing duties such as the stockholders' equity section of the balance sheet, and for assisting client management in writing notes to the financial statements. Assuring the forward progression of the work by skillful coordination of subordinate tasks is perhaps the manager's most crucial role, as he or she is responsible for finishing engagements at or under budget. This role naturally becomes more difficult when managers supervise several audit engagements at once. The manager must review in detail the findings of junior staff, solve any major problems, and adjust the audit's scope to deal with unexpected occurrences. The manager communicates with the client throughout-specifically, with the client's audit committee or controller-and must resolve any differences tactfully without expending large amounts of time.
When an audit is completed the manager reviews the findings with a partner. Partners are the ones eventually responsible for the audit, as they sign their names to the financial statement. The partner also provides input to the manager on the "management letter," which serves as a summary of the engagement and outlines the auditor's comments and recommendations to the client.
Depending on size and type of firm, an auditing position may infringe on your lifestyle because of overtime. Typically, the heavy auditing season begins in December and runs through March, with overtime and weekend work common regardless of position level. In most firms, overtime is either compensated or accumulated as vacation time. Smaller firms may be more suitable for those who are unwilling to handle great amounts of overtime or pressure. Travel is also a consideration: out-of-town auditing engagements may require trips lasting anywhere from a week to a month.
Educational Background and Training: The typical educational requirement for entry into the auditing field is a Bachelor of Science degree in an accredited program of accounting. Master's degrees are not the norm, and are not required in the auditing area of the firm, although those with undergraduate degrees in areas other than accounting might have MBAs.
On-the-job training usually plays the most important part in the auditor's success. However, an accounting degree is perhaps one of the more immediately applicable college degrees; courses taken in an accredited accounting program have direct application from the first day auditors begin their career. The accounting principles and auditing standards that must be applied to auditing constitute a major part of undergraduate accounting study. Courses that include study of recent accounting pronouncements and auditing standards are most important, as these will be put to use early in the auditor's first year and are also essential for successful completion of the CPA exam.
Any prior experience, acquired perhaps through part-time or summer work, is an asset to the beginning auditor, both in terms of finding a position and giving him or her, an edge over less experienced peers. Also, starting salaries are based somewhat on prior experience. Depending on firm size, training may be a highly formalized and continuing process in the auditor's career or simply a matter of on-the-job learning. Small firms without the resources or need for training departments typically train the junior auditor on actual work assignments. Large firms-specifically, the "Big Eight"-place great emphasis on in-house training, and have developed training programs and courses for all position levels within each division.
As an entry-level auditor in a large firm, you would probably start your career with full-time audit training courses lasting from one to four weeks. Beginning courses attempt to bridge the gap between the accounting and auditing theory taught in college courses and actual practice, with special emphasis on the firm's individual approach to auditing practice. A typical training exercise would run you through a simulated audit complete with documentation, work-paper examples, audit reports, and letters. You may also receive-depending again on the particular firm-self-guided training courses for study toward the CPA examination. You would be encouraged to begin immediate study for this exam, as the amount of study required is extensive. For those auditors without access to formalized instruction, CPA review can be done through private instruction and is recommended in addition to self-study.
Since most states require varying amounts of "continuing professional education" (CPE) in order for an accountant to maintain the CPA license, training is necessarily an ongoing process, whether it is acquired in-house or from external sources such as seminars or college courses. In addition to technical courses specifically concerned with accounting or auditing, large firms may offer non-accounting training courses, recognizing the need for skills such as written and oral communication and group leadership. The training offered by large accounting firms is an advantage to be considered when searching for a position, as smaller firms generally do not have the resources necessary for training.
Attributes of Successful Auditors: Technical accounting and auditing knowledge and the corresponding analytical skills necessary to put the technical knowledge to work are important attributes you need to develop to be a successful auditor. You must be intimately familiar with all aspects of the accounting process and with the technical industry standards and pronouncements guiding those processes. As accounting theory and practice are constantly in transition, you must keep your technical know-how updated and ready to be applied in practice.
As accounting is not an exact science, analytical skill and good judgment are crucial. Although there are guidelines that spell out how most transactions are to be accounted for, situations always arise for which there are no specific answers. You must use your judgment in making decisions in an environment where there is little time for decision making. Supervisors working under pressure to complete engagements do not have the time necessary to answer constant questions or otherwise guide junior staff throughout the tenure of the engagement. While this does not mean questions are never answered, you must set priorities in terms of questions' importance and relevance, using your own judgment on less important matters.
Supervisory skill is a perhaps overlooked, yet crucial, attribute of successful auditors. Promotion to higher levels depends to a large extent on highly developed supervisory skills.
Interpersonal skills also come into play on a daily basis, in terms of both communicating with fellow auditors and establishing good rapport with the client's personnel. The auditor must keep in mind the effect his or her presence can have on personnel. Auditing disrupts the client's regular work routine and is sometimes viewed as "policing"; auditors are seen as searching for employees' accounting errors. This can evoke a defensive attitude from these personnel. At the same time, auditors must often request assistance in locating documents and require explanations of various client records. Thus, auditors must attempt to acquire all the audit information they require, while simultaneously dealing tactfully with the client so as to ensure cooperation.
Supervisors generally evaluate subordinates after each audit engagement, eventually compiling these individual evaluations into an annual review upon which salary increases and promotions are based. Auditors will find that supervisory and interpersonal skills are on an equal basis with technical excellence when promotion decisions are made.
The two-year mark in the auditor's career is generally the juncture where career options are most numerous. Having completed the two-year experience requirement mandated by most states for the CPA license, many auditors either seek positions in the private accounting sector as highly sought-after CPAs, or look for transfers to other divisions. A typical internal transfer would be a move to the tax, management advisory, or small business department-or perhaps a move to a smaller CPA firm where higher position visibility is possible and competition for manager and partner positions is not as intense as in large firms. Those remaining within auditing often choose to specialize within specific industry groups, such as utility companies or hospitals.
