If you were an auditor, how would you review a company’s accounting related records to identify...

If you were an auditor, how would you review a company’s accounting related records to identify potential liabilities which were not reported on the company’s balance sheet?

Expert Solution

Internal control is an auditing process in which the objectives of the organization are evaluated and their reliability and operational efficiency and effectiveness is determined. The person performing the internal control is called internal auditor of the company. This process determines whether the goals of the organisation are framed within the stipulated rules and regulations and are complied with prescribed provisions. It is a process which helps in detection of any kind of fraud and misrepresentation in the company environment.

According to the given question,

The investigation requires:

Physical checking of the accounting system of the company
Collecting source documents related to all receipts and invoices
Collecting evidences of preparation of financial statements and necessary working notes used in the preparation of financial statements etc.

The source documents are the documents which are used in reaching the final conclusion. These documents are vital in making of the final decision by the auditor. Along with the working papers made by the auditor are also of great importance as they are clerical evidences of the detailed investigation made by the auditor.

The auditor should take unbiased decision and should check the working of the control committee, risk management committee and all other departments of the company. According to the question, the auditor should go deeply in the matter and should collect evidences stating the origins of the fraud or misrepresentation of accounting records. He should check the cash account and any increase or decrease in cash and cash equivalents and other assets by liabilities. If on additional investigation liabilities are found which need to be reported on balance sheet and are not of contingent nature, The auditor should note them and provide evidences of existence of those liabilities in the audit report.

Once the auditor is done with the investigation process, he should provide his opinion in the auditor report regarding whether the working of the company is justified or not.

ekkarill92 answered 8 months ago

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