The correct answer is: D. 1, 2 and 3
Valuation is the process of determining the worth of an asset or liability. Verification is the process of ensuring that the information in the financial statements is accurate and complete. Vouching is the process of tracing a transaction from the source documents to the financial statements.
The correct sequence of these activities is:
- Valuation
- Verification
- Vouching
Valuation is the first step in the audit process because it is necessary to determine the worth of the assets and liabilities before they can be verified. Verification is the second step because it is necessary to ensure that the information in the financial statements is accurate and complete before it can be vouched. Vouching is the third step because it is necessary to trace a transaction from the source documents to the financial statements in order to verify the accuracy of the information.
Here is a more detailed explanation of each of these activities:
Valuation
Valuation is the process of determining the worth of an asset or liability. The value of an asset or liability can be determined based on its historical cost, its current market value, or its future cash flows.
Verification
Verification is the process of ensuring that the information in the financial statements is accurate and complete. Verification is typically done by comparing the information in the financial statements to the underlying source documents.
Vouching
Vouching is the process of tracing a transaction from the source documents to the financial statements. Vouching is typically done by following the trail of documentation from the initial transaction to the final entry in the financial statements.
I hope this explanation is helpful. Please let me know if you have any other questions.