How to Go About Auditing TeswayAuditing is defined as: “The examination of records and documents and the securing of other evidence for one or more of the following purposes: (a) determining the propriety of proposed or completed transactions, (b) ascertaining whether all transactions have been recorded, (c) determining whether transactions are accurately recorded in the accounts and in the statements drawn from the accounts. ” (Illinois State Board of Education, 2007)Before going on to audit the firm, there is a need to understand that there could be a considerable amount of risk that is associated with auditing.
This risk is known as the acceptable audit risk. This risk is named because this is the risk that is most acceptable by the auditor during the procedure. This risk is associated with the validity of the financial statements that have been provided to the auditor. It is the role of the auditor to evaluate the credibility of the financial statements but there could be a chance that the company may have hidden some information that was of use to the auditor and the auditor may not have a chance to find it out.
This is a major risk because then the results of the audit would not encompass that piece of information and this could in turn change the results of the audit to another side. Hence, there must be some calculated risk that the auditor takes before performing the procedure of the company. The following step in the auditing procedure would be the planning stage where the auditor would try to understand the environment the company works in and what the purpose of the business is.
It is understood from the previous section that the company is currently working in a very competitive environment where there are a number of retail shops open that are providing the same products at a lower price. This is the reason due to which the company had to reduce its prices and bring in different schemes or promotional purposes. The main objective of the business is to provide a large variety of products and services to the customers at their own convenience. The company has spanned from being a conventional store to an online store and this is the main scope of the company.
The scope of the company will further be analyzed for its validity. Both the income statement and the balance sheet show a picture with a lot of discrepancies. There are some problems such as that of the increase in the revenue and the costs which are leading to a lower profit. It seems that Tesway has made a number of investments such as that of sourcing as well there has also been some restructuring of debt.
However, all these changes cannot be understood till the notes to the financial statements are not understood clearly. These notes will be studied further in the next section of the paper and hence, there is a need to list the number of observations that have been made from the financial statements so that there is a clear indication of the things that must be understood and analyzed.