Knowledge of the client’s business and industry - Business operations and processes

Business operations and processes. The auditor also studies what happens inside the company. A walkthrough means following one transaction through the process, asking the employees involved what they do and inspecting the records they use. For example, the auditor follows a customer order from approval to delivery, invoicing, posting and collection.

Business process	Documents the auditor may inspect	What could go wrong?
Purchasing and receiving timber	Purchase order, goods received note and supplier invoice	Timber received in December is recorded only when the invoice arrives in January, understating year-end payables.
Production and storage	Production orders, job cost sheets and inventory records	The company counts the same batch as both work in progress and finished goods.
Sales and delivery	Customer order, delivery note and sales invoice	The company records a December sale even though control passes to the customer in January.
Collection from customers	Bank statement, remittance advice and customer ledger	The company receives payment but credits the wrong customer’s account.