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Without knowledge of company policy & accounting system auditor cant audit any financial statment.
Auditors are to report to many other external entities, like shareholders, Banks, and authorities. So that they should make sure that the accounting system is providing the needed internal controls, and the reporting system.
There are various reasons for auditors need to understand clients accounting system to determine whether the organisation is following:-
1. Cash method / Accrual method
2. depreciation rules
3. staff benefits method
4. Inventory auditing - FIFO, LIFO, Average, etc.
5. Treatment of foreign currencies
6. Lower of cost and net realizable value
7. historical cost convention basis
historical cost convention basis
impairment of assets
comparative figures
Because business process(i.e. EPP & recording system) varies company to company to some degree & compliance process also might be somewhat different. That is why for an effective audit knowledge on accounting system.
