ORIGINS OF FINANCIAL AUDIT
To know where we are going, we need to know where we come from
Let’s begin with:
Financial Audit*
*I use the term “Financial” Audit to differentiate it from any other type of audit.
A Financial Audit is like a checkup for a company’s money records. The auditor's job is to look at the company's financial reports and make sure everything is accurate and follows the rules. This helps shareholders and potential investors decide if they should put their money into the company or buy it, as well as monitor the real performance of the business. After a technical review, the auditor gives his/her "opinion" (conclusion) to the company’s Board of Directors, telling them whether the financial information is correct and fair. This way, everyone can trust the company's financial health.
The Board of Directors is a group of people chosen to help guide and make big decisions for a company. Think of them like the coaches of a sports team. They don’t handle the day-to-day work (that’s the job of the CEO and managers), but they make sure the company is on the right track and growing. Their main job is to protect the company’s interests and make sure it succeeds. They also represent the shareholders (the people who own a piece of the company), and they help decide things like company goals, big plans, and whether the company is doing well or not.
The Board of Directors has some important legal duties, which means they are required by law to act in certain ways. Here’s a breakdown:
Act in the company’s best interest: They must make decisions that help the company succeed, not for their own personal gain. It’s like always playing for the team, not just for yourself.
Follow the law and rules: They must ensure the company follows all the laws and regulations. If the company breaks the law, they can get into big trouble.
Manage money responsibly: The board must be careful with the company’s finances, making sure money is used wisely and for the right reasons.
Keep things honest: They have to be honest with shareholders and investors about the company’s performance, like if the company is doing well or struggling.
Supervise and guide the company: They need to make sure the managers and executives are doing their jobs properly and that everything is running smoothly.
If they fail in these responsibilities, they can be held legally responsible and might face consequences, like fines or losing their position.
A BIT OF HISTORY
The origins of financial audit began in the 1800s in England, where the need for accountability first arose. It then spread into the United States.
It was 1932 when the New York Stock Exchange began requiring financial audits. It did not become a requirement for newly listed companies until 1933 when the Securities Act of 1933 and the Securities Exchange Act of 1934 were enacted by President Franklin D. Roosevelt. The latter created the Securities and Exchange Commission (SEC), which required all current and new registrants to have audited financial statements.
SEC: Securities and Exchange Commission, whose mission is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.
A well-known example of a financial and accounting scandal and actions taken by authorities to stop these scandals from happening:
Enron. At the end of 2001, it reported its financial condition was sustained by an institutionalized, systematic, and creatively planned accounting fraud, known since as the Enron scandal. The company succeeded in hiding some important facts, such as off-book liabilities, from banks and shareholders. Enron filed for bankruptcy.
Enron has become
synonymous with willful corporate fraud and corruption. The scandal also brought into question the accounting practices and activities of many corporations in the United States and was
a factor in the enactment of the Sarbanes–Oxley Act (SOX controls) of 2002, aimed to protect investors by preventing fraudulent accounting and financial practices at publicly traded companies. Sarbanes-Oxley imposed a number of reporting, accounting, and data retention mandates to ensure that business practices at big companies remain above board. The data transparency that this law mandates is meant to protect investors or potential investors from misjudging a company’s finances due to manipulation by insiders.
A Financial Audit is required by law. A Financial Auditor fulfills a legal requirement that most companies have to comply with.
MY ROLE AS FINANCIAL AUDITOR
I have been trained by and worked for one of the Big Four largest public accounting firms, Deloitte (Arthur Andersen) for some 6 years and have conducted audit reviews in many companies, large and SMEs.
I am member of the Spanish Auditors Official Register (ROAC*, in Spanish) since 2007
*UK ACCA or US CPA equivalent
Within this role I built
experience in Telecommunications, Utilities, Manufacturing and Energy sectors primarily.
I was involved in a variety of assignments audit and non-audit related as senior leader:
- Initial Public Offering (IPO) for Terra -Movistar internet subsidiary- listed in US and Spain,
- Analytical accounting unbundling project for the main Greek utility company),
- Conducted due diligences and performed quantitative analysis of specific transactions.
I also built a strong knowledge of US and UK GAAP, IFRS and IAS. In-depth knowledge of financial statements analysis. Managed teams of up to 20 people and liaised confidently with senior management at client's.
Key Achievements
- Led the audit team of the main Spanish utility Headquarters, Endesa, for two years.
- Effectively established an audit testing of derivatives instruments for one of the firm’s biggest clients. It included reviewing and assessing the client´s hedging strategy and concluding on the information provided on risks and financial data.
