Transactions include the sale or return of a product, the purchase of supplies for business activities, or any other financial activity that involves the exchange of the company’s assets, the establishment or paying-off of a debt, or the deposit from, or paying out of money to, the company’s owners.
The transaction is listed in the appropriate journal, maintaining the journal’s chronological order of transactions.
The transactions are posted to the account that it impacts, and are part of the general ledger, where you can find a summary of all the business’s accounts.
Calculate a trial balance at the end of the accounting period (quarter or year, depending on the business’s practices).
Corrections or adjustments are tracked on a worksheet for the depreciation of assets and to adjust for one-time payments.
Post any corrections needed to the affected accounts once the trial balance shows the accounts will be balanced once the adjustments needed are made to the accounts.
Prepare the balance sheet and income statement using the corrected account balances.
Initial planning activities include formal acceptance of the client, verifying compliance with independence requirements and performing other procedures to determine the nature, timing, and extent of procedures to be performed in order to conduct the audit in an effective manner.
Use their knowledge of the business, the industry and the environment in which the company operates to identify and assess the risks that could lead to a material misstatement in the financial statements.
Auditors develop an overall audit strategy and a detailed audit plan to address the risks of material misstatement in the financial statements. The audit strategy and plan is continually reassessed throughout the audit and adjusted to respond to new information obtained about the business and its environment.
Apply professional scepticism and judgment when gathering and evaluating evidence through a combination of testing the company’s internal controls, tracing the amounts and disclosures included in the financial statements to the company’s supporting books and records, and obtaining external third-party documentation.
Finally, the auditors exercise professional judgment and form their overall conclusion, based on the tests they have carried out, the evidence they have obtained and the other work they have done. This conclusion forms the basis of the audit opinion.