If you've ever looked into roles at a big accounting firm, you've probably seen the word "audit" pop up a lot. What does it mean and why do "auditors" exist? Let's dive in!
❓What are auditors and why do they exist?
🔍 What do auditors do?
🤔 What's assurance?
🌈 What are the different kinds of auditors?
🏢 Where do auditors work?
Picture this: You've been carefully saving up, and you're now ready to invest in the stock market. It's exciting, but there's a catch – investing your money means taking a risk, and the stakes are high. You want to be sure that the companies you're investing in are as financially healthy and stable as they claim to be. But how can you be certain?
This is where auditors come into play. Auditors scrutinize companies' financial statements to make sure that everything adds up.
Think about it like this: If you run a company and you know that at the end of the day, someone's going to poke their nose into your books and ask about anything fishy, you'll probably be more careful about keeping your records straight and following the rules.
The last thing accountants want is for an auditor to come in behind them only to discover discrepancies or errors.
Of course, auditors do sometimes fail us, bringing about tragic consequences. But if we didn't have them at all:
So auditors are kind of like referees in a sports game. They won't be able to catch all instances of cheating, but they certainly help reduce cheating and ensure that things are as fair as possible.
Imagine a company, "ABC Technologies," that has submitted its annual financial statements for auditing. Here's what the auditor would do.
Auditors don't just dive in and start checking numbers at random! The first step is to understand the business and plan their approach.
The crucial first phase was always planning and understanding. You get to know what the client actually does, review their overall financials, and understand their business model.
Then you determine "materiality"—basically, at what dollar amount would an error actually matter to someone reading these financial statements? There's a huge difference between a $500 discrepancy and a $5 billion one!
Once you've set your materiality thresholds, you decide which accounts are significant enough to test. If ABC's main business is selling software, you'll definitely audit those revenue streams carefully, but maybe their small merchandise sales aren't material enough for detailed testing.
For the accounts you do test, you'll only look at a sample. If you check 100 software sales transactions and find two with $10 errors, you'll need to extrapolate those findings to the entire population to assess the potential impact.
– Former junior auditor @ KPMG
It's only after all the planning and understanding is done that you start the actual audit.
The bulk of "busy season" is this testing phase. The company's accounting year might end December 31st, but you've already been planning for months. Then once year-end hits, they dump all their data on you, and the real work begins—testing transactions, gathering evidence, and forming your opinion on whether those financial statements are fairly presented.
– Former junior auditor @ KPMG
The auditor examines the financial records, like sales invoices, bank statements, and transaction records. They ensure that the amounts listed in the financial statements match these records. For instance, if ABC Technologies reports a revenue of $2 million, the auditor verifies this against actual sales data.
Auditors don't make up their own rules! They check that financial statements follow accounting standards like IFRS (International Financial Reporting Standards) or GAAP (Generally Accepted Accounting Principles).
Beyond the numbers, the auditor assesses if the financial statements provide a true and fair view of the company's finances.
When auditing a college, you might find they recorded a $2 million alumni donation as unrestricted funds. But checking the documentation reveals the donor specified it's only for the Chemistry Department. This "restricted cash" must be properly labeled—otherwise financial statements mislead users about what money is actually available for general use.
– Former junior auditor @ KPMG
At the end of the day, the financial statements will be read and understood by a third party, like an investor who'll rely on it to make important decisions. So the auditor will evaluate whether they're presented in a clear, understandable, and transparent manner.
They'll also review the notes accompanying the financial statements for clarity and completeness.
I've previously audited an investment firm where I needed to check their footnotes about the stocks they invest in—these covered details like countries, industries, and their top 50 positions. These aren't just technicalities; they're crucial for investors to understand where their money is actually invested, so verifying their accuracy ensures proper transparency.
– Former junior auditor @ KPMG
To learn more about what auditors do, check out:
You may have noticed that the term "assurance" often comes up with "audit." For example, some firms call their audit department "Audit & Assurance" services. What does this mean?
For the most part though, assurance work is mostly audits!
An external audit is done by people who don't work for the company they're checking. They're like independent experts who come in to make sure the company's financial statements (the records showing how much money it made and spent) are correct and honest.
This is important for investors (people who have invested money in the company), regulators (officials who make sure companies play by the rules) and for others who need to trust that the company is doing things the right way.
External audits is mainly what the Big 4 does. It's like their main "product".
– Former junior auditor @ KPMG
In an internal audit, the company looks at its own activities. It’s like checking your own work to find mistakes or areas to improve.
Whereas external auditors check a company's books for external stakeholders (shareholders, regulators and the like), internal auditors only examine their own company's processes for the company's own internal use.
They're like the internal support team that identifies weaknesses in order to build upon their processes. Think of it like KPMG auditing KPMG's own processes. Our internal auditors would make sure we filed our expenses correctly or audited smaller business processes as opposed to clients' financial statements.
Big 4 hires internal auditors as well but much less.
– Former junior auditor @ KPMG
Companies often hire experts from big accounting firms for this. These auditors look at more than just money matters; they also check if the company is working efficiently and following its own rules and laws. It's a way for the company to make sure it's doing its best in all areas.
You'll often hear the word "controls" used in internal audits. Controls are the rules or tools that a company uses to make sure it doesn't get in trouble. For instance, imagine a rule where two teachers have to check your homework to make sure there are no mistakes. This would be a control to prevent errors. As an auditor, you'd help check to make sure that these controls are working or suggest better ones.
While audits are usually done for large public companies that must be audited, some private companies (not on the stock market) also hire accounting firms to conduct audits.
Here are some pro's of working a private audit role.
If you're in your 2nd or 3rd year ... you'll be liaising directly with the FD or CFO whatever they call themselves, but basically you'll be in the deep end, managing the relationship with the most senior members of the client's finance function ... and this just is not how things work with [public] clients, where the unwritten rule is that partners are responsible for dealing with CFO-level people and you as a more junior member of the audit team stay in your lane ... which can be slightly uninspiring.
On the down side, because you'll be handling all sorts of companies, there's no guarantee about the type of company you'll get (some of them may be a mess!). Private enterprises tend to be more local, so you'll also get less international exposure.
The rise of financial crimes (and their increasing complexity) around the world has turned forensic accounting into growing profession. As a forensic auditor, you would analyze financial activities, primarily to detect and prevent fraud.
Forensic accounting is essentially specialized auditing focused on financial crimes. Unlike regular audits where companies voluntarily bring you in, forensic accountants typically get called when something's already suspicious.
You might be hired by law firms or government agencies (like the FBI) to investigate potential fraud, examining invoices and financial records from obscure companies.
The core skill is similar—ensuring financial accuracy—but the context is different. Instead of verifying that everything's right, you're usually looking for what's wrong.
– Former junior auditor @ KPMG
Finally, if you have any specific interests, you may be able to find a niche audit role that fits it.
A growing practice area is ESG audit. Investors and stakeholders are increasingly seeking transparency in ESG initiatives—and with experience in auditing financial statements, regulatory information, and managing internal controls attestation, this niche translates well for auditors who can seamlessly apply their knowledge to ESG data sets.
The same holds true for cryptocurrency audits which are a growing need.
Last but not least, you can work for the government as an auditor.
Government audit jobs are definitely out there too, though you won't see as many campus recruiters for these positions.
You might work at the IRS checking tax returns, or even at the SEC "auditing the auditors"—basically, you'd review the audit work that Big 4 auditors did.
– Former junior auditor @ KPMG
Auditors work for all kinds of employers across different sectors. Here's just a snapshot of where you might could work as an auditor.
Public accounting firms are hired by corporations, governments, and other entities to perform audits. These firms are often called "audit firms" because their primary service is to conduct independent audits of other businesses.
At a corporation or a business, you'd help audit the company you work for.
We hope this gives you a better idea of what it's like to be an auditor. And if you're still on the hunt for a promising opportunity, check out all the internships we have in this field!