Ch 5 and 7 Flashcards
3 audit evidence decisions
NATURE: Which audit procedures?
EXTENT: Which items to test?
TIMING
3 categories of audit procedures
RISK ASSESSMENT: assess risk of material misstatement
TESTS OF CONTROLS
SUBSTANTIVE: detect material misstatements
Audit program
Detailed instructions for the entire collection of evidence
T or F: Sufficient appropriate evidence must be conclusive.
F. It must be persuasive.
3 characteristics of persuasive evidence
APPROPRIATE: reliable & relevant
SUFFICIENT: enough evidence
TIMELY: covering appropriate time period
6 Factors to consider when assessing reliability of evidence
In general, the reliability of audit evidence increases when it is obtained:
(1) Directly by the auditor
(2) From an independent source
(3) From a qualified source
(4) From consistent multiple sources
(5) If the client’s internal controls are effective
and also note that (6) objective evidence is more reliable than subjective evidence
2 most important factors in determining sample size
Auditor’s expectation of errors
Effectiveness of client’s internal controls
Timeliness of audit evidence
SFP accounts: obtained as close to the balance sheet date as possible
SCI accounts: covers the entire period rather than only a part of the period
7 ways to collect audit evidence
- Inspection
- Observation
- External confirmation
- Recalculation
- Reperformance
- Analytical procedures
- Inquiry
T or F: External documents are considered more reliable than internal
True.
Vouching vs. Tracing
Vouching: use of documentation to support recorded transactions/amounts
Tracing: use of documentation to determine if transactions or amounts are included in the accounting records
4 Types of Analytical Procedures
Compare client data with:
- Industry data
- Similar prior-period data
- Client-determined expected results
- Auditor-determined expected results
If risk is pervasive, what adjustments to audit strategy may be undertaken?
- Assign more experienced staff
- Heighten the level of professional skepticism
- Increase involvement of audit partners and managers
- Closer supervision and review
Per CAS 315.28, the auditor is required to consider… (re: significant risk)
- risk of fraud
- risk related to key economic, accounting, or other developments
- complexity of transactions
- significant related party transactions
- degree of subjectivity in the measurement of financial information
- significant transactions outside the normal course of business
Steps of a Fraud Risk Assessment
- DISCUSS with audit team members
- Make INQUIRIES to management, those in charge of governance, etc regarding process for identifying/responding to fraud
- Evaluate UNUSUAL/UNEXPECTED relationships
- Evaluate risk for revenue fraud and MANAGEMENT OVERRIDE
