Ch#3 Audit Evidence

Question 1

What is meant by test of control?

Answer 1

Objective of tests of control is to confirm the operating effectiveness of internal control in preventing detecting and correcting material misstatements at assertion level
Examples:
1-Inspecting approval of transaction
2-inspecting reconciliation
3-observing segregation of duties

Question 2

Define substantive procedures

Answer 2

objective of substantive procedure is to detect material misstatements in financial statements at assertion level examples of substantive procedures are
analytical procedures and tests of detail.

Question 3

Whats the relation between tests of control and substantive procedures

Answer 3

Inverse relation

Question 4

What is audit evidence

Answer 4

it is the information used by the auditor on the basis of which audit report is made

Question 5

Define sufficiency of audit evidence and the factors needed to be considered while determining sufficiency.

Answer 5

Sufficiency is the measure of quantity of audit evidence.
it is affected by: 1)Assessed risk of material mis statement
2)material and
complexity of item.
3)auditors knowledge in experience of business.
4)quality of audit evidence
5)strength of internet control system of client.

Question 6

If internal controls of an entity are very effective came in auditor omit substantive procedures

Answer 6

1)Even if the internal controls of an entity are strong still the auditor needs to perform substantive procedures because of inherent limitations of the internet control system and auditing standards requires substantive procedures on every area

Question 7

If client says that the internal controls are weak do auditor need to perform test of controls

Answer 7

Since they are already weak as per client auditor doesn’t need to perform tests of control

Question 8

If the client says our internal controls are strong to auditor needs to perform test of controls

Answer 8

Yes the auditor needs to verify the statement made by the client and perform test of control so that he can use internal control in his risk assessment.

Question 9

Bank balance or clients bank statement which one is more reliable

Answer 9

Bank balance is direct evidence and bank statement is indirect so big balance is more reliable.

Question 10

How will we know that the source is direct or indirect

Answer 10

If auditor is performing himself it is direct is performing it is indirect so direct evidence is more reliable than indirect evidence

Question 11

How an auditor decides whether the evidence is reliable or not

Answer 11

1)Controlld
2)Original
3)Documentary
4)External source
5)Direct
These are more reliable

Question 12

Describe concept of occurrence and completeness

Answer 12

for verifying completeness we need to check the supporting documents in compare them with the recorded amount

For verifying occurrence we need to check the recorded amounts in compare it with the supporting documents