Strawberry, an external auditor, was assigned to audit the financial statements of Winter Company who is engaged in the production of iced popsicles. As part of the audit, Strawberry wanted to understand the processes within the company and decided to start by conducting an observation. However, Winter Company wants to obtain a justification first as to why Strawberry will be allowed to observe how things are being done inside the company. What should be the response of Strawberry?

Having an understanding of the relevant processes within your company is necessary to identify and understand events, transactions, and practices that may have an impact on your financial statements. Observation is one way to achieve this. The observation that I will do is aimed at documenting material weaknesses in your production and internal control systems. By doing so, you will be provided with proposals on how to address these weaknesses. Observations are used to determine if there may be material misstatements in your financial statements. This is the goal of an external audit. I will be looking into observing the step-by-step process of making iced popsicles and will provide you with process improvement ideas to improve efficiency. This will add value to the audit and will benefit you