Audit Evidence Flashcards
What does sufficiency relate to?
The quantity of audit evidence
What does appropriateness relate to?
The quality of audit evidence
What is the level of persuasiveness for evidence?
1) Auditor developed
2) Obtained from outsider - bank confirmation
3) Prepared by outsider but obtained from client
4) Prepared by client - letter of representation
What is included as audit evidence?
Accounting records - not sufficient appropriate evidence by itself
Corroborative evidence - minutes, confirmations, etc.
What are management’s assertions?
U-PERCV Understandability and classification Presentation and disclosure Existence and occurrence Rights and obligations Completeness and cutoff Valuation, allocation, and accuracy
What are management’s assertions for classes of transactions and events?
CPA-CO Completeness Period cutoff Accuracy Classification Occurrence
What are management’s assertions for YE account balances?
RACE Rights and obligations Allocation and valuation Completeness Existence
What are management’s assertions for presentation and disclosure?
RACU Rights and obligations Accuracy and valuation Completeness Understandability and classification
What are two categories of substantive tests?
Test of details - verify account balances, etc.
Analytical procedures - examine relationships
What are types of audit procedures?
I-CORRIIA Inquiry Confirmation Observation Recalculation Reperformance Inspection Analytical procedures
What is tracing?
Tests completeness
Start from source and go to books
What is vouching?
Tests existence
Start from books and go to source
What are 5 types of comparisons that may be performed as analytical procedures?
CRAFT Client vs. industry Related accounts Actual vs. budget Financial vs. non-financial This year vs. prior
When are analytical procedures required?
Planning
Overall review
Recommended in substantive tests
What is kiting?
Attempt to overstate cash by showing deposit in current year and disbursement per books in subsequent year
Use interbank transfer schedule to detect
What is bank cutoff statement?
Sent directly by bank to auditor with closing date a couple of weeks following year-end
Used to ensure O/S checks and deposits clear in a reasonable amount of time
When would a negative A/R confirmation be used?
Low exception rate expected
For small balances
Auditor does not expect request to be ignored
Gives implicit evidence
When would a positive A/R confirmation be used?
For large balances
Gives explicit evidence
When would a blank A/R confirmation be used?
For large balances
High assessed RMM
Expect customer not to pay attention to negative confirmation
What is lapping?
Attempt to cover theft of A/R collection by posting subsequent collection from another customer to that subsidiary account
What should audit documentation include at a minimum?
Reconciliation of accounting records with F/S
Audit program
Documentation of understanding of I/C
Documentation of assessed CR
Proof of sufficient evidence obtained to support opinion
Client representation letter
What would be included in the current file?
Audit program Working trial balance Lead schedules Responses to info requests Reconciliations by auditor
What would be included in the permanent file?
Organization documents Minutes Flowcharts of I/C Debt agreements Analyses of equity accounts
What representations are included in management representation letter?
Management is responsible for:
Prep of F/S
DIM of I/C
Unaware of errors or fraud that would have material effect on F/S
No acts of fraud by management
Minutes are complete and made available
All financial records made available
No pending legal matters with material impact that have not been disclosed
Believes all estimates are reasonable
All related party transactions have been identified
Subsequent events have been properly accounted and disclosed
What would suggest a related party transaction?
Loans at zero or unusually low interest rates
Sales at prices far above or below market value
Large, non recurring transactions occurring very close to B/S date
Loan guarantees
Maintaining compensating balances for benefit of principal S/H
How are estimates audited?
1) Review and test management’s process
2) Independently develop an estimate
3) Review subsequent events up to date of auditor’s report
4) Test effectiveness of I/C related to estimates
What is a Type 1 subsequent event?
Condition existed at B/S date
Requires adjustment
What is a Type 2 subsequent event?
Condition did not exist at B/S date
Disclose info
