A4 Audit Evidence PT 1

Question 1

How does an auditor gather evidence gathered during an audit?

4 ways

Answer 1

The Auditor gathers audit evidence when performing:

1. Risk Assessment Procedures
2. Test of Controls
3. Substantive Procedures
4. Other Audit Procedures

Question 2

What Factors should be considered when evaluating the reliability of audit evidence?

6 factors

Answer 2

The following factors should be considered when evaluating the reliability of audit evidence:

1. The auditor’s direct personal knowledge (e.g. from observation, examination, inspection, or recalculation) provides more persuasive evidence than knowledge obtain indirectly.
2. Evidence obtained from independently external sources is more reliable than internally generated evidence.
3. Evidence sent directly to the auditor is more valid than evidence received and held by the client.
4. Internal evidence generated under strong, effective I/C is more reliable than generated under weak controls.
5. Consistency among evidence provides a greater degree of assurance.
6. The accuracy and completeness of info produced by the client should be evaluated.

Question 3

How is the relevance of evidence determined?

What does PCAOB Standard state about relevance of audit evidence?

Answer 3

To be relevant must relate to the F/S assertions under consideration.

PCAOB standards state that the relevance of audit evidence depends on the design and timing of the audit process.

Question 4

What influences the auditor’s decision about the sufficiency of evidential matter?

Answer 4

1. Risk of Material Misstatement

2. The quality of audit evidence

Question 5

FIVE CARROT CARS - Some of the standard auditing procedures used in most audits:

Answer 5

1. Footing, crossfooting, & recalculation
2. Inquiry
3. Vouching
4. Examining / Inspection
5. Confirmation
   6 Analytical Procedures
   7 Re-performance
   8 Reconciliation
   9 Observation
   10 Tracing
   11 Cutoff Review
   12 Auditing related accounts simultaneously
   13 Representation Letter
   15 Subsequent events review

Question 6

What should the direction testing be if the auditor is concerned about the EXISTENCE or OCCURRENCE assertion?

Answer 6

Vouching backwards from the accounting records (F/S, JE, ect) to source documents provides evidence of existence or occurrence.

Question 7

What should the direction of testing be if the auditor is concerned about the COMPLETENESS assertion?

Answer 7

Tracing forward from source document to the accounting records (i.e. F/S, JE, etc.) provides evidence of completeness.

Question 8

Which department are responsible for preparing the sales order, approving the sales order, preparing the bill of lading, and preparing the invoice?

Answer 8

Sales Order = Sales department
Approving the S.O. = Credit dept
Prepares the bill of lading = Shipping dept
Prepares the invoice: Billing department

Question 9

Which department should approve write-offs of uncollectible accounts?

Answer 9

The treasury department should approve write-offs of uncollectible accounts.

Question 10

A list of cash receipts should be sent to which 3 departments?

Answer 10

1. The cashier
2. A/R (billing)
3. General accounting dept
   ^ should each receive a copy of the cash receipts listing

Question 11

What are 5 common audit procedures related to revenue cycle?

Answer 11

1. Trace a sample of doc to sales invoice and the sales journal (completeness)
2. Vouch a sample of sales transactions from the sales journal to the shipping documents (existence)
3. Examine sales transactions from shortly before and after YE for recording the proper period (cutoff)
4. Confirmation of sample of A/R (existence)
5. Testing of the allowance for uncollectible accounts (valuation)

Question 12

Negative confirmation be use?

Answer 12

Customer is requeted to reply only if amount stated by auditor is incorrect. Should be used when:
combined assessed level of inherent and control risk is low,
A large number of small balances are being confirmed,
and recipients are not expected to disregard the confirmation

Question 13

What are the 5 steps involved when using analytical procedures for substantive testing?

Answer 13

1. Determine that analytical procedures are suitable for testing the assertion(s)
2. Evaluate the reliability of the data from which the auditor’s expectation in to be developed.
3. Develop an expectation of the recorded amount.

4 .Compare the actual and expected amounts.

5. Investigate any significant differences.