Practicing Due Diligence in Auditing
After you finish auditing all your client’s business and financial processes, you must perform due diligence before you issue your audit report. Due diligence means that you hunt for any issues that weren’t addressed during the audit of the financial statements — issues that may have an impact on the way people interpret those financial statements.
For starters, you look at what has happened in the life of your client since the balance sheet date. Certain events require financial statement adjustments, and other events require disclosure through a footnote to the financial statements, which is part of your audit report.
Also, you review your client’s contingent liabilities, which are existing situations, such as lawsuits, that hinge on an event that hasn’t yet happened. Another part of due diligence is determining whether your client can continue as a going concern — whether it can stay in business for another year.
You may also need to discuss certain audit issues with the people responsible for overseeing your client’s financial system, which in a larger company means an audit committee. This step is required if your client has an existing audit committee or is regulated by the Securities and Exchange Commission (SEC).
Keep in mind that this list of due diligence steps isn’t all-inclusive. If your CPA firm requires additional procedures, your audit supervisor will let you know.