The auditor should define a strategy to determine the components that will be the basis for the development of an audit. This includes studying the client’s basic information and documentation and obtaining sufficient and competent evidence in the planning phase. In the auditing process, the comparison of the financial statements for the current year and the previous year is a basic element to be used.
Summaries with the necessary elements at the level of the balance sheet and profit and loss accounts are the fundamental tools in identifying the significant groups of accounts or unusual variations.
The organizational charts of the company are structural guides, not the dictatorial plans to provide data regarding the importance of certain business areas. The information of lawyers is an essential part of the auditor’s work in the examination of the financial statements, as their results can generate contingencies that must be recognized in the accounts.
Computer systems that support financial management are part of the internal control system and the auditor is required to study and evaluate it and must rely on an expert for the purpose.
The cancellation of tax obligations, their accounting treatment, and their settlements must be included in the scope of the audit procedures for auditing the financial statements, so depending on their impact, the results are included in the components.
Payroll system in the organization is one of the most important items in the income statement, so knowing it in depth is basic for the auditor and the internal computer controls are essential in the evaluation of the payroll system.
Bank accounts which company operates and the statistical information of banks is essential to prepare the confirmations of balances at the close of the audit; all banks accounts must be confirmed. The management of fixed and revolving funds is a clear indicator of the honesty of the company’s staff and when included in the current assets, it involves an important analysis of accounts.
Purchasing an account payable systems are cycles of operations that are normally evaluated. Determining the percentage of requests and their relationship to the physical inventory of materials, spare parts, supplies, and fixed assets allow covering this component in full.
Stockholders’ equity, includes the capital stock, legal reserve, other statutory reserves, profits or loss of the year and internal controls necessary for the timely accounting of decisions made by ordinary and extraordinary shareholders’ meetings and their impact on the structure of the company. The classification of stockholders’ equity includes the contributed, livestock, authorized, subscribed, retained earnings and donations. The statement of shareholders’ equity in the statement of financial position represents the shareholders’ equity, which is comprised of the capital contributions made above the nominal value of the shares.
Operating expenses include expenses to be carried out by the company in accordance with the changes in its articles of incorporation and in the corporate purpose, so we must analyze internal control mechanisms applicable to these transactions considering the evolution of their percentage with respect to sales.