U.S. Company Audit Revealed Why Audits Matter How They Work!

Do You Know the Inside Story of Corporate Audits in the United States? Exploring the Importance and Process of Auditing

In the highly developed capital markets of the United States, the authenticity and transparency of corporate financial information serve as a cornerstone for maintaining market confidence. As a critical mechanism to ensure this foundation remains solid, auditing plays an indispensable role. Recently, with multiple well-known listed companies under regulatory investigation due to abnormal financial data, public attention toward audit systems has once again intensified.

In September 2025, PwC, one of the world’s leading accounting firms, became embroiled in an audit controversy involving a major technology company. According to The Wall Street Journal, the tech firm had repeatedly changed its revenue recognition methods over the past three years, while PwC failed to detect the potential risk of material misstatement in a timely manner. This incident prompted an investigation by the U.S. Securities and Exchange Commission SEC, reigniting heated discussions around audit independence. This case not only exposed certain companies’ weaknesses in financial management but also highlighted the broader challenges currently facing the auditing profession-how can auditors maintain professional judgment and independence amid fierce market competition?

Why Is Auditing So Important?

The core value of auditing lies in verifying the truthfulness and fairness of corporate financial statements through independent third-party institutions, thereby enhancing investors’, creditors’, and other stakeholders’ trust in a company's financial health. In a securities regulatory system like that of the United States, which centers on information disclosure, audit reports are seen as a kind of health checkup for businesses, making their importance self-evident.

In recent years, as economic uncertainty has increased and business operations have grown more complex-especially in emerging sectors such as technology and biopharmaceuticals-issues related to revenue recognition and valuation of intangible assets have become increasingly intricate. Against this backdrop, high-quality audit services have become even more essential.

Moreover, audits play a key role in preventing financial fraud. According to the 2025 Global Fraud Study released by the Association of Certified Fraud Examiners ACFE, although the proportion of financial statement fraud among all business fraud cases has declined slightly, the average financial loss caused by such fraud has significantly increased. This means that without effective audit oversight, companies may face massive financial losses or even reputational collapse.

The Basic Audit Process for U.S. Companies

Annual financial audits of U.S. companies are typically conducted by external independent accounting firms, following both Generally Accepted Auditing Standards GAAS in the United States and relevant International Standards on Auditing ISA. The entire audit process generally consists of the following stages

1. Preliminary Planning and Risk Assessment

Before the formal audit begins, the audit team must conduct a comprehensive understanding of the industry, management integrity, and internal control mechanisms, identifying areas where there may be risks of material misstatements in the financial statements.

2. Testing of Internal Controls

Auditors evaluate the company’s financial systems, approval processes, asset management, and other aspects to determine whether these controls are capable of preventing errors or fraudulent activities.

3. Substantive Procedures

This is the core of the audit process, involving detailed examination of key account balances, transaction categories, and disclosures. For example, auditors verify whether accounts receivable actually exist, whether inventory is accurately measured, and whether revenue recognition complies with accounting standards.

4. Forming an Audit Opinion and Issuing the Report

Upon completion of the audit, auditors assess whether the financial statements have been prepared in accordance with applicable accounting standards in all material respects. Based on this evaluation, they issue audit opinions, which may include unqualified, qualified, adverse, or disclaimer opinions.

5. Follow-up Communication and Recommendations

In addition to issuing the report, audit teams often provide recommendations to management regarding identified issues, helping improve the company’s overall financial governance.

Inside Look Real Challenges in Auditing

Despite appearing rigorous, the audit process still faces many gray areas in practice. For instance, some companies may attempt to manipulate financial results by engaging in complex related-party transactions or off-balance-sheet financing to hide debt or inflate profits. Meanwhile, some accounting firms might loosen their audit standards due to pressure to retain clients or maintain business relationships.

Earlier this year, the U.S. Senate held hearings examining whether the Big Four accounting firms-Deloitte, EY, KPMG, and PwC-have effectively regulated themselves. Experts have pointed out that the current high level of concentration in the audit industry has led to insufficient competition, ultimately compromising audit quality. Additionally, frequent movement of personnel between audit firms and client companies can also undermine audit independence.

In response, the SEC has begun implementing a series of reform measures, including stricter enforcement of auditor rotation requirements, improved traceability of audit documentation, and stronger penalties for violations. These initiatives aim to restore public confidence in the audit system.

Conclusion

Auditing is not merely a compliance requirement for corporate operations; it is a guardian of healthy capital market development. In a financial system like that of the United States, where investor decisions heavily rely on accurate and transparent information, every audit decision directly impacts the interests of millions of investors. As business environments evolve and financial structures grow increasingly complex, continuous improvement of audit frameworks and enhancement of professional standards are essential to safeguarding the foundational trust upon which capital markets depend.