Audit & Assurance: Audit Evidence

Question 1

Audit evidence from least to most persuasive (with examples)

Answer 1

Internally generated - client has ability to manipulate - eg. inventory count results, aged AR, sales invoices, spreadsheets

Externally generated, but held by client - eg. supplier invoices, bank statements

Externally generated - eg. bank confirmation

Question 2

2 requirements of audit evidence

Answer 2

sufficiency (quantity) & appropriateness (relevance & reliability)

Question 3

4 types of audit evidence

Answer 3

physical - eg. examine a tangible asset

confirmation - eg. written communication from third party

documentary - eg. inspecting a client’s internal or external docs

analytical - eg. ratios

Question 4

Which of the following is the most reliable type of audit evidence?

a) calculating the current ratio
b) inspecting bank statements
c) recalculating the AR subledger
d) performing test counts of inventory

Answer 4

d) is correct because the auditor’s execution of procedures or controls is an externally generated type of audit evidence, which is the most reliable of the three types of audit evidence (internally generated, externally generated but held by the client, and externally generated)

Question 5

True or false: the higher quality of audit evidence obtained, the less audit evidence may be needed

Answer 5

true

Question 6

Complete the statement: if the auditor is unable to obtain sufficient appropriate audit evidence related to all accounts, classes of transactions, and disclosures on the financial statements, then the auditor is unable to:

a) continue with the engagement
b) issue an unqualified audit opinion
c) use a combined approach

Answer 6

b) issue an unqualified audit opinion