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Auditing > 5 Audit Evidence and Working Papers > Flashcards

5 Audit Evidence and Working Papers Flashcards

1
Q

What must an audit opinion be based on

A

Evidence, or it is a guess which would be negligent

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2
Q

What would happen if there is a lack of evidence

A

Would be a qualified audit opinion

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3
Q

What does ISA 500 “Audit Evidence” call for

A

Sufficient and appropriate evidence should be obtained to draw reasonable conclusions to base the audit opinion

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4
Q

What is ISA 200 “Objective and General Principles Governing an Audit of Financial Statements”

A

The general principles that govern auditing, similar to conceptual framework

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5
Q

What is audit risk

A

The risk that the auditor expresses an inappropriate audit opinion

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6
Q

What is business risk

A

The risk resulting from significant conditions, events, circumstances, actions or inactions that could adversely affect an entity’s ability to achieve its objectives and execute its strategies, or from the setting of inappropriate objectives and strategies.

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7
Q

What is a scope restriction

A

When there is insufficient or inappropriate evidence to form an opinion
Must be disclosed
Such as directors withholding information

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8
Q

What is sufficiency

A

This is for the auditors to apply their own judgement

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9
Q

What is materiality and risk

A

The relative size of the company, its inherent complexity and likelihood that there might be misstatement

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10
Q

What are economic factors when considering the collection of audit evidence

A

Audit firms are there to make money and their biggest costs are labour
Would look at cost/benefit of investing more man hours to the additional quality of the report
Does often lead to junior staff not reporting overtime so they appear to be more productive and secure promotions

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11
Q

What are population size and characteristics when considering the collection of audit evidence

A

The sample size to gain confidence over the whole population
Can’t review every transaction so often audit based on systems
Evaluate the system and if that works with a small sample it should be good for the whole population

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12
Q

What is Relevance and Reliability when considering the collection of audit evidence

A

All information must be specific to the auditors’ objectives
Must be telling the auditor something about if the accounting show a true and fair view
Anything else is waste

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13
Q

What are the five characteristics of relevant information

A
  1. Existence or occurrence
  2. Completeness
  3. Rights and obligation
  4. Valuation or measurements
  5. Presentation or disclosure
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14
Q

What is existence or occurrence

A

Have to make sure that all assets exist, and all transactions took place within the year and not the prior or following
Existence relates to items on SFP (snapshot in time) and occurrence relates to the P&L leading up to that snapshot

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15
Q

What is completness

A

Nothing is missing, overstated or duplicated
Not just what is inside the audited entity but also third party inputs

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16
Q

What is rights and obligations

A

Make sure that all assets and liabilities meet the recognition criteria as set out in the Conceptual Framework

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17
Q

What is valuation or measurements

A

Assets, liabilities, equity, revenues and expenses are recorded at an appropriate amount
Also that processes are mathematically accurate and in alignment with the supporting schedules
Most popular one to manipulate the numbers

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18
Q

What is presentation or disclosure

A

Must all be shown in a clear and understandable way
Various components must be properly classified, described and disclosed

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19
Q

What is reliability

A

Reliability of audit evidence depends mainly on its nature, source and objectivity

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20
Q

What is the most reliable source of evidence

A

External evidence

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21
Q

What makes internal evidence more reliable

A

Strong internal controls

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22
Q

Which is more reliable: Evidence generated by the client or audit firm

A

Audit firm

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23
Q

What are the two main types of evidence

A

Direct
Corroborative

24
Q

What is direct evidence

A

Direct audit evidence is from underlying accounting data
Given too the auditor by the client

25
Q

Why is it not the best to solley rely on direct evidence

A

Relying on this is limited as relying on management to provide true facts
An audit based only on this has little value as you are just trusting what management is telling you

26
Q

What is corroborative evidence

A

All evidence that corroborates the direct evidence given by the client
Can be generated inside the company and corroborated outside

27
Q

What is the purpose of corroborative evidence

A

To confirm direct evidence

28
Q

What is documentary evidence

A

It is a form of corroborative evidence such as:
Orders, invoices, receipts, goods received noted (GRN’s), despatch notes, supplier statements, bank statements, cheques, board minutes, legal documents, correspondence

29
Q

What are confirmations

A

It is a form of corroborative evidence
When an auditor specifically writes to a third party to confirm something
This must be done with the clients permissions
The people are not required to reply

30
Q

How can you get confirmations if the party does not reply

A

By checking if they pay the outstanding balance

31
Q

What are the main types of audit procedure

A

Inspecting documents
Analytical procedures
Confirming
Inquiring
Physical examination and/or counting
Observing
Reperforming
CAATs

32
Q

What is inspecting documents

A

Includes all work where the auditor obtains evidence by reading the words and/or numbers, calculations, signatures etc., on any document (whether direct or corroborative).

33
Q

What are analytical procedures

A

All computations and analyses performed by the auditor
This includes ratio analyses and analytical reviews.

34
Q

What is confirming

A

Where the auditor writes to an independent person (e.g. a bank or a debtor) asking them to confirm (corroborate) direct audit information obtained from the client
This is known as a ‘confirmation letter’.

35
Q

What is inquiring

A

Includes all questions asked of client staff
Where important, conversational (oral) evidence MUST be supported in some permanent form, e.g. a signed documentary record or minutes of a meeting

36
Q

What is physical examination

A

Where the auditor physically examines and /or counts anything, e.g. inventory items during stock-taking observations
Long term asset inspections and counts
If needs to be valued a professional valuer should be brought in

37
Q

What is reperforming

A

Where the auditor re-performs anything already done by the client, such as calculations

38
Q

What are CAATs

A

Normally, this work is performed by specialists employed with the audit firm’s computer audit section. CAAT’s are beyond the scope of the syllabus. However CAAT’s fall mainly within 2 types:
* Parallel Simulation
* Test Data

39
Q

What is parallel simulation

A

The auditor processes REAL batches of client data, (e.g. sales data, inventory records), through the audit firm’s computer.
The auditor’s output files should match the client’s files

40
Q

What is test data

A

The auditor processes his/her own batches of ‘test data’ through the client’s computer (usually during a week-end).

41
Q

What is the importance of sampling

A

Must collect enough data to form a representative view on the company

42
Q

What is the relationship between risk and required evidence

A

When the risks inherent with the organisation increase the need for evidence increases

43
Q

What is observing

A

Where the auditor observes the client staff performing a procedure, such as stock-taking

44
Q

What is enhancing evidence

A

External information is generally more trusted than that provided by management
Evidence is enhanced when there is clear evidence of strong internal controls

45
Q

What are working papers

A

Include all paperwork and electronic documentation and other records generated by the auditors
All of the tests, evidence, results and conclusions must be thoroughly documented by the auditor as these documents comprise the evidence that leads to their opinion
An audit not based on evidence is a negligent guess

46
Q

What are compliance tests

A

Test accounting systems are working
Make sure what is meant to happen is complied with

47
Q

What are substantive tests

A

Tests to substantiate the final numbers
Mostly done after year end as needs to be consolidated

48
Q

What is the importance of staff performance reviews

A

Included in working papers and is an important part of accountability
Senior reviews junior, manager reviews senior and partner reviews manger

49
Q

What is the overall audit process

A

All process documentation that the partner and manager create that leads to the audit opinion should be included
This is in case they have to defend their audit opinion in court as it will be used as key evidence
It should explain all evidence for the years audit

50
Q

What is the importance of confidentiality

A

All papers are the property of the audit firm
Even information they have collected on the client
Firms are very protective of this information and is held very securely

51
Q

What is the current file

A

Contains all of the audit programme and all evidence and documentation relevant to the current year
Also carries last years file for reference

52
Q

What is the permanent file

A

Contains all evidence of ongoing relevance for reference purposes
Thorough documentation on company’s activities, practices and polices
Everything a new member of staff would need to fully understand the company
Prevents auditor annoying the company by asking the same questions about their activities every year

53
Q

What is the nature of working papers

A

To create records of:
* Procedures applied
* Tests performed
* Information obtained
* Conclusions reached
So that anyone can fully understand the audit by just looking at the papers

54
Q

What is the purpose of working papers

A
  • Principle support for the audit papers
  • Evidence that the audit complied with ISA’s
  • Means for supervising and reviewing the audit
55
Q

What are the types of working papers

A

Schedules and analysis for every section of the audit
Audit memoranda and corroborating information
Including external corroborating evidence
Working trial balance and adjustments

Auditing (11 decks)

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