**Case Study: XYZ Corporation - A Journey Through Financial Challenges and Audit Resilience**

**Introduction:** XYZ Corporation, a multinational conglomerate, has been a key player in the industry for decades. However, recent years have witnessed a series of financial challenges that have raised concerns among stakeholders, including the board of directors, investors, and regulatory bodies.

**Financial Challenges:** The company faced a downturn in its core market, leading to a decline in revenue and profitability. Additionally, there were concerns about the management of working capital, with inventory levels soaring and cash flow becoming increasingly strained. The CFO, under pressure to mitigate these challenges, explored various strategies to present a more favorable financial picture.

**Audit Resilience:** In the face of these challenges, the internal audit team played a crucial role in upholding the integrity of the company's financial reporting. The auditors adhered strictly to accounting standards, ensuring that financial statements accurately reflected the company's financial position and performance. They scrutinized the treatment of various financial transactions, including revenue recognition, provision for doubtful debts, and the valuation of assets.

**Key Audit Procedures:** The audit team performed rigorous substantive procedures, conducting detailed tests of transactions and account balances. They assessed the effectiveness of internal controls and scrutinized management's representations. Additionally, the auditors engaged in thorough analytical procedures to identify any anomalies that could indicate financial irregularities.

**Collaboration with Management:** Despite the financial challenges, a collaborative relationship between the audit team and management was maintained. Open communication channels allowed for a transparent exchange of information. The audit team sought explanations for significant fluctuations and variances, ensuring a comprehensive understanding of the financial data.

**Addressing Going Concern Issues:** The auditors critically evaluated the company's ability to continue as a going concern. They assessed management's plans to alleviate financial distress and considered the adequacy of disclosures in the financial statements regarding uncertainties and risks.

**Question:** Given the context of the financial challenges faced by XYZ Corporation, identify and discuss one specific audit procedure that the internal audit team should prioritize to ensure the reliability of the financial statements. Additionally, explain how this procedure contributes to the overall audit objective of providing assurance on the financial statements.