AUD 3.6 - Procedures To Obtain Evidene Flashcards
The following standard procedures are used in audits as risk assessment procedures, test of controls, or substantive tests:
Confirmation
Footing
Inquiry
Vouching
Inspection/examination
Cutoff review
Analytical procedures
Reperformance
Reconciliation
Observation
Tracing
Walk-through
Auditing related accounts simultaneously
Representation letter
Subsequent event review
Involves obtaining representations rom independent external third parties about account balances and transactions or events:
Confirmation
Confirmations are considered what type of audit evidence?
External evidence
Involves verifying the mathematical accuracy of statements and schedules by adding down, across, or recalculating amounts.
Footing, cross footing and recalculation
What type of audit evidence is footing
Auditors knowledge
Involves requesting information from knowledgeable parties both internally and externally
Inquiry
What type of audit evidence is inquiry?
Oral evidence
Involves examining support for what has been recorded in the records ad statements, going from the financials back to supporting documents to gather evidence regarding possible overstatement of errors.
Vouching
What type of audit evidence is vouching?
Internal evidence
What assertion does vouching achieve?
Existence and occurrence
Involves inspecting records, documents, etc. that may be internal or external and may be in paper or electronic form
Examination/inspection
What type of audit evidence is examination/inspection?
Auditors knowledge
What assertion does examination/inspection provide evidence for?
Existence
Involves review of year-end transactions especially inventory, cash, purchases, sales, and accruals.
Cutoff review
What type of audit evidence is cutoff review?
Internal evidence
Involves evaluations of financial information by a study of meaningful relationships among data to help highlight unusual fluctuations that could be the result of errors or fraudulent omissions or overstatement
Analytical procedures
What type of audit evidence is analytical procedures?
Auditors knowledge and internal evidence
Involves independently performing procedures or controls that were originally performed as part of an entity’s internal controls
Reperformance
What type of audit evidence is reperformance?
Auditors knowledge
Involves comparing financial amounts from two independent sources or agreement such as reconciling the physical inventory count with the perpetual inventory records
Reconciliation
What type of audit evidence is reconciliation?
Internal evidence
What assertions does reconciliation substantiate?
Existence and valuation
Involves the auditor looking a t a process or procedure that has been performed by others
Observation
What type of audit evidence is observation?
Auditors knowledge
Involves starting with the source documents and following them forward to provide assurance that the event is being given proper recognition in the books and records and provides evidence regarding possible understatement of errors.
Tracing
What type of audit evidence is tracing?
Internal evidence
Involves questioning an entity’s personnel about their understanding and may include a combination of inquiry, observation, inspection, recalculation, and reperformance.
Walk-through
What type of audit evidence is walk-through
Auditors knowledge and oral evidence
Involves auditing two accounts at the same time:
Auditing related accounts simultaneously
What accounts can be audited at the same time?
Long term liabilities and interest expense
Capital additions to PP&E and repairs and maintenance expense
Investments and dividend and interest income
What type of audit evidence is auditing related accounts simultaneously?
Internal evidence
Involves obtaining this from the client at the conclusion of fieldwork
Representation letter from management
What type of audit evidence is the representation letter?
Internal evidence
Involves performing certain procedures for the period after the balance sheet date through the date of the auditors report
Subsequent events review
What type of audit evidence is subsequent events review?
All of them (AEIO)
Compares the financial statement item for the current period with the prior period
Trend analysis
When is trend analysis best used?
When the amount or relationship is fairly predictable and operations are stable
What level of assertion does trend analysis provide?
Low
Calculated based on known relationships among accounts or nonfinancial informatio and compared with the same for the prior periods with comparable entities:
Ratio analysis
Ratio analysis is best used when?
Analyzing data by segment, product, or location
What level of assurance does ratio analysis provide?
Low
Uses predictive model to estimate financial statement amounts
No statistical predictive modeling
Nonstatistical predictive modeling is best used when?
When creating expectation based on simple variables
What level of assurance does no statistical predictive modeling provide?
Could provide a very high level of precision and may be used as the principle substantive procedure
Advanced statistical technique that often uses data from prior periods to develop a model to predict future periods
Regression analysis
Regression analysis is best used when?
Creating expectations based on several independent variables
What level of assurance does regression analysis provide?
May provide a very high level of precision and my be used as the principle substantive procedure
What are several advantages that regression analysis has over other methods to develop auditors expectations?
Provides a precise method for forming an expectation
Includes a large number of independent variables
Provides direct and quantitative measures of the precision of the expectation
What is a limitation to analytical procedures?
That differences do not necessarily indicate errors or fraud, but that further investigation is needed
A type of directional testing that moves forward from source documents to journal entries to provide evidence of completeness:
Tracing
Type of directional testing that moves backward from journal entries to source documents providing evidence for existence:
Vouching
If a test started with items in the financial statements, the proper assertion is most likely to be:
Existence
(The auditor searches for evidence indicating that the item truly exists and has not been created by management)
If a test starts with source documents, the proper assertion is most likely to be:
Completeness
(The auditor is to make sure all transactions have been included in the financial statements)
The confirming party responds directly to the auditor by stating that the party agrees or disagrees with the information in the request
Positive confirmation
The confirming party respond directly to the auditor only if the confirming party disagrees with the information in the request
Negative confirmation
When audit procedures relate to asset, liability, and equity account balances (balance sheet accounts), the most relevant assertions are:
Completeness
Valuation, allocation, accuracy
Existence and occurrence
Rights and obligations
When testing income statement transactions, the most relevant assertions are:
Completeness
Cutoff
Valuation, allocation, accuracy
Existence and occurrence
Understandability and classification
When auditing revenue transactions, the auditor generally focuses on testing what assertions?
Existence/occurence assertion rather than completeness because revenue is more likely to be overstated than understated
What audit procedures correlate to the completeness assertion?
Tracing
Analytical review
Observation
What audit procedures relate to the cutoff assertion?
Cutoff procedures
What audit procedures relate tot eh valuation, allocation, and accuracy assertion?
Inspection
Footing
Independent recalculation
Reconciliation
What audit procedures relate tot he existence and occurrence assertion?
Confirmation
Observation, inspection, and examination
Vouching
What audit procedures relate tot eh rights and obligations assertion?
Inspection
What audit procedures relate to the understandability and classification assertion?
Inspection
Review
Inquiry of management
