6: Engagement Procedures, Staffing and Developing the Work Program Flashcards
Evidence is gathered during an audit engagement. What is the most persuasive form of evidence? What type of evidence is the least persuasive?
Most persuasive – Auditor’s physical examination
Least persuasive – Client oral testimony
Who makes assertions about the recognition, measurement, presentation, and disclosure of information in the financial statements?
Management.
Who performs procedures that test the validity of assertions made and assesses the risks of material misstatement?
Internal auditors.
List and define: Assertions about classes of transactions and events for the period.
Occurrence – recorded transactions and events actually occurred
Completeness – all transactions and events that should have been recorded were recorded
Accuracy – amounts and other data were recorded appropriately
Cutoff – transactions and events were recorded in the proper period
Classification – transactions and events were recorded in the proper accounts
List and define: Assertions about account balances at period end.
Existence – assets, liabilities, and equity interest exist
Rights and obligations – entity holds or controls the rights to assets, and liabilities are its obligations
Completeness – all assets, liabilities, and equity interests that should have been recorded were recorded
Valuation and allocation – assets, liabilities, and equity interests are included at appropriate amounts, and any adjustments are appropriately recorded
List and define: Assertions about presentation and disclosure.
Occurrence and rights and obligations – disclosed transactions, events, and other matters have occurred and pertain to the entity
Completeness – all disclosures that should have been included were included
Classification and understandability – financial information is appropriately presented and described, and disclosures are clearly expressed
Accuracy and valuation – information is disclosed fairly and at appropriate amounts
Match the assertion with the correct statement(s):
Assertion Statement
Presentation and disclosure Balance Sheet
Account balances Income Statement
Transactions and events Statement of Cash Flows
Notes to the financial statements
Assertion Statement
Presentation and disclosure Notes to the financial statements
Account balances Balance Sheet Transactions and events Income Statement and
Statement of Cash Flows
Define tests of controls as an audit procedure.
Tests the operating effectiveness of controls in preventing, or detecting and correcting, instances of noncompliance.
When are tests of controls required?
When the auditor’s risk assessment is based on an expectation of the operating effectiveness of controls
or
Substantive procedures alone do not provide sufficient appropriate evidence
What are substantive procedures used for?
To detect material misstatements at the relevant assertion level (transaction class, account balance, disclosure).
List commonly used manual audit procedures.
Inquiry
Observation
Inspection
Vouching
Tracing
Confirmation
Reperformance
Analytical procedures
The internal auditors procedure of observation is effective for verifying whether
Particular assets exist
A certain process or procedure is being performed appropriately at a moment in time
For what purpose is interviewing especially helpful?
To obtain an understanding of client operations.
What does inspection entail?
Inspection of records or documents
Physical examination of assets
Providing clear evidence regarding the existence assertion
A direct, written response to the auditor from a third party used for audit evidence is called
Confirmation.
