How does a subsidiary ledger help in auditing?

A subsidiary ledger plays a crucial role in the auditing process primarily because it allows for cross-checking of control account information. This means that the detailed records in the subsidiary ledger are directly linked to summary totals in the general ledger. When auditors examine the accuracy of account balances, they can trace individual transactions recorded in the subsidiary ledger back to the corresponding control account.

This cross-referencing is essential for validating the integrity of financial statements. By ensuring that the sum of the individual subsidiary accounts aligns with the total in the control account, auditors can identify discrepancies that may signal errors or potential fraud. The subsidiary ledger, therefore, provides a granular level of detail that enhances the reliability of the financial information being reported.

Other options do not address the primary function of the subsidiary ledger in auditing. While detailed monthly reports can provide insights into account activity, they do not specifically support the verification process as effectively as cross-checking does. Eliminating the need for reconciliation is not accurate, as reconciliation is often necessary to confirm the accuracy of accounts. Lastly, consolidating all transactions into one entry does not support the auditing process, since detailed records are crucial for verifying the legitimacy and accuracy of financial transactions.