Audit Evidence -General Flashcards
Audit evidence is gathered throughout the audit when performing
Risk Assessment Procedure
Tests of Controls
Substantive Procedures
Other Audit Procedures
Audit evidence most reliable to least reliable
Auditor’s direct personal knowledge & observation
External Evidence
Internal Evidence
Oral Evidence
What are substantive procedures designed to detect?
They are designed to detect material misstatements at the assertion level.
When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document the:
Auditor’s expectations
Factors considering in the development of expectation
results of the comparison
Additional Audit procedures performed in response to significant unexplained differences
Results of such additional procedures
Tracing tests for
Completeness, coverage
Vouching tests for
Existence/Occurrence
A positive confirmations is when
the customer has to respond to the auditor o whther it agrees or disagrees with the amount.
A negative confirmation is when
the customer only responds to the auditor if it disagrees with the amount
If the client refuses to allow the auditor to send out the external confirmation
then the auditor should evaluate the situation and speak to those charged with governance regarding the opinion to be issued due to the auditor unable to gather sufficicent audit evidence.
What is an exception response?
A response that indicates a difference between information provided by the confirming party and the entity’s records. All of the exception responses are to be investigated. Figure out whther it is fraud, error, material misstatement or deficiencies in iternal control over Financial reporting.
What are audit procedures?
Footing, Crossfooting, Recalc Inquiry Vouching Examination Confirmation Analytical Procedures Reperformance Reconciliation Observation Tracing Cutoff Review Auditing Related Accounts Simultaneously Representation Letter Subsequent Events Review
Review of Relevant Assertion- Account Balances CVER
- Completeness
- Valuation, Allocation, and Accuracy
- Existence & Occurrence
- Rights & Obligations
Transactions & Events (CoveU)
- Completeness
- CutOff
- -Valuation, Allocation, and Accuracy
- Existence & Occurrence
- Understandability & Classification
Presentation & Disclosure (CVRU)
- Completeness
- -Valuation, Allocation, and Accuracy
- Rights & Obligations, and Occurrence
- Understandability ad classification
PCAOB Standars are CEO Approved
-Completeness
-Existence
-Occurrence
-Allocation
-Presentation
-Rights
Obligation
-Valuation
-E
Disclosure
Analytical procedures are most appropriate when testing which of the following types of transactions?
Operating Expense Transactions
PCAOB standards state that the relevance of audit evidences depends on all but which of the following?
The Auditor’s risk assessment
Why may an analytical procedure might be used as a substantive test?
To achieve audit objectives in the most effective and efficient manner possible.
How would an auditor of a nonissuer most appropriately respond to a heightened assessed risk of material misstatement?
By assigning more experienced staff or those with specialized skills to high-risk areas.
An auditor intends to use the work of an actuary who has a relationship with the client. Under these circumstances, the auditor:`
Should assess the risk that the actuary’s objectivity might be impaired.
What is one way an auditor can identify litigation, claims, and assessments?
Read the file of correspondence from taxing authorities.
According to PCAOB standards what does not reflect a qualitative standard that should be considered when evaluating the materiality of an uncorrected misstatement?
The dollar amount of the error
To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an auditor most likely would:
Examine the audited financial statements of the investee company.
Identifying Related Party Transactions
- Compensating Balance arrangements
- Loan guarantees
- Unusual, nonrecurring transactions near year-end
- transactions that differ significantly from normal terms
- Nonmonetary exchanges
Auditors resp. regarding to accounting estimates
- Evaluate the degree of estimation uncertainty associated with an accounting estimate.
- Assess management’s written policies and practices regarding the development and use of estimates
- Verify that all material estimates have been developed
- Determine that the accounting estimates are reasonable
- Ensure that the accounting estimates are properly presented & disclosed in conformity with GAAP
Procedures to be taken regarding Accounting Estimates
1) Review & test the procedures used by management to develop the estimates
2) Develop an independent estimate of the item for comparative purposes
3) Review subsequent events & transactions (occurring prior to the date of the auditor’s report) that corroborate the value of the estimates.
Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?
Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices. because you are testing existence
During an audit of an entity’s stockholders’ equity accounts, the auditor determines whether there are restrictions on retained earnings resulting from loans, agreements, or state law. This audit procedure most likely is intended to verify management’s assertions related to:
Classification and understandability.
What should you do when you find out that Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control activity that provides for
Investigation of variances within a formal budgeting system.
The primary evidence regarding year-end cash balances in the financial statements is documented in the:
Bank recon. Something that the client prepares compared with the bank statement on client file
The primary responsibility of a bank acting as registrar of capital stock is to
Verify that stock is issued in accordance with the authorization of the board of directors and the articles of incorporation
Which of the following sets of information does an auditor usually confirm on one form?
Cash in bank & collateral for loans
An auditor’s purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning management’s assertions about:
understand ability & Classification
Caveat means
Warning
If the control risk is assessed as low, then
less substantive testing is necessary
