Question

Congratulations! You have been chosen to lead the financial audit of a small retail store on Main Street in Denver. Based on your conversation with the owner, he has a basic journal with all the revenues and expenses listed. However, he does not keep an electronic accounting system and all prior financial statements are handwritten. He explains that he needs to get a 100,000 loan to expand his business. How would you proceed with the audit?

Answer 1

For the purpose of getting a business loan, audit is compulsory for any business. In order to proceed with the audit, following points needs to be considered:

1. Revenues & expenses should be recorded as per accounting standards & principles.
2. Double entry books should be maintained in order to prepare balance sheet & profit & loss statement.
3. Opening balance should be checked with the help of prior period financial statements.
4. Vouching of all accounting entries needs to be done.
5. All transaction during the year should be recorded & adjustments should be made as per the Acts & Rules as applicable

As in the given case, audit of a small retail store is to be conducted, therefore, handwritten financial statements will be considered if it is in compliance with the accounting standards & principles.