Ch 5 Evidence and Documentation Flashcards
Management assertions
Representations
with respect to the recognition, measurement, presentation, and disclosure of information in the FS,
which are inherent in management,
representing that the FS are prepared in accordance with the applicable financial reporting framework.
Assertions are used by the auditor to consider the different types of potential misstatements that may occur when identifying, assessing, and responding to the risks of material misstatement.
Management assertions fall into 2 categories:
Assertions about classes of transactions and events, and related disclosures, for the period under audit
-occurrence
-completeness
- authorization
- accuracy
- cutoff
-classification
-presentation
Assertions about account balances, and related disclosures, at the period end
-existence
-rights and obligations
-completeness
-accuracy, valuation, allocation
- classification
-presentation
Audit evidence
info used by auditor in arriving at the conclusions on which the auditors opinion is based
info to which audit procedures have been applied and consists of info that corroborates or contradicts assertions in the FS
3 categories important to understanding conduct of audit
Information used as audit evidence
Sufficiency and appropriateness of audit evidence
Evaluation of audit evidence
Sufficiency & Appropriateness
measure of the quantity of audit evidence
measure of the quality of audit evidence
Sufficiency and appropriateness of audit evidence are interrelated, and they affect the persuasiveness of audit evidence
Persuasiveness
relates to the auditor obtaining appropriate audit evidence that is sufficient for the auditor to draw a reasonable conclusion about the entity’s FS
Relevance & Reliability
of info used as audit evidence refers to its relationship to the assertion or to the objective of the control being tested
of evidence refers to whether a particular type of evidence can be relied upon to signal the true state of an assertion
Risk assessment procedures
used to obtain an understanding of the entity and its environment, including its internal control, to assess the risks of MM at the FS and relevant assertion levels
Further audit procedures
Test of Controls
Substantive Procedures
Test of controls- used to test the operating effectives of controls in preventing, or detecting and correcting, MM at the relevant assertion level.
Substantive procedures- used to detect MM at the relevant assertion level. Substantive procedures include test of details and substantive analytical procedures
Audit Program
A set of audit procedures prepared to test assertions for a component of the financial statements is usually referred to as an audit program.
Audit procedures
Specific acts performed by the auditor in gathering evidence to determine if specific assertions are being met.
Audit Procedures for Obtaining Audit Evidence
types of evidence obtained
inspection
- vouching
-tracing
observation
inquiry
confirmation
recalculation
reperformance
analytical procedures
Vouching
Refers to selecting an item for testing from the accounting journals or ledgers and then examining the underlying source document.
Tracing
Refers to selecting a source document and testing that it is included in the accounting journal or ledger.
Analytical procedures used by auditor to accomplish 3 purposes
Risk assessment procedures
Substantive analytical procedures
Final analytical procedures
Audit documentation has 3 purposes
To provide principal support for the representation in the auditor’s report that the audit was conducted in accordance w GAAS
To aid in the planning, performance, and supervision of the audit
To provide basis for the review of the quality of the work by providing a written documentation of the evidence supporting the auditors significant conclusions
Types of Analytical Procedures
Trend analysis
analysis of changes in an account over time
Ratio analysis
comparison, across time or to a benchmark, of relationships between FS accounts or between an account and nonfinancial data
Reasonableness analysis
involves forming an expectation using a model
The best primary audit evidence regarding year-end bank balances is documented in the
Standard bank confirmations
Which of the following procedures would provide the most reliable audit evidence?
Inspection of bank statements obtained directly from the client’s financial institution
Which of the following presumptions is correct about the reliability of audit evidence?
An effective internal control structure provides more assurance about the reliability of audit evidence.
Which of the following types of audit evidence is the most persuasive?
Bank statements obtained from the client
According to the third standard of fieldwork, which of the following terms identifies a requirement for audit
evidence?
Appropriate
Which of the following would not be considered an analytical procedure?
Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics
Analytical procedures used in planning an audit should focus on
Enhancing the auditor’s understanding of the client’s business
An auditor discovered that a client’s accounts receivable turnover is substantially lower for the current
year than for the prior year. This may indicate that
There was an improper cutoff of sales at the end of the year.
Which of the following nonfinancial information would an auditor most likely consider in performing analytical
procedures during the planning phase of an audit?
Square footage of selling space
An auditor’s analytical procedures most likely would be facilitated if the entity
Uses a standard cost system that produces variance reports
Which of the following comparisons would an auditor most likely make in evaluating an entity’s costs and
expenses?
The current year’s payroll expense with the prior year’s payroll expense
Which of the following is not required documentation in an audit in accordance with generally accepted
auditing standards?
. A flowchart depicting the segregation of duties and authorization of transactions
In creating lead schedules for an audit engagement, a CPA often uses automated workpaper software.
What client information is needed to begin this process?
. General ledger information such as account numbers, prior-year account balances, and current-year unadjusted information
Which of the following factors would least likely affect the quantity and content of an auditor’s working
papers?
The content of the representation letter
The permanent (continuing) file of an auditor’s working papers most likely would include copies of the
Debt agreements
An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes,
but containing columns for
Reclassifications and adjustments
Which of the following procedures would an auditor most likely rely on to verify management’s assertion of completeness?
comparing a sample of shipping documents to related sales invoices
In testing the existence assertion for an asset, an auditor ordinarily works from the:
accounting records to the supporting documents.
Which of the following statements concerning audit evidence is correct?
The measure of the reliability of audit evidence lies in the auditor’s judgment.
Audit evidence can come in different forms with different degrees of reliability. Which of the following is the most persuasive type of evidence?
computations made by the auditor
An auditor would be least likely to use confirmations in connection with the examination of
refundable income taxes.
The current file of the auditor’s working papers should generally include:
a copy of the financial statements.
The permanent file section of the working papers that is kept for each audit client most likely contains:
narrative descriptions of the entity’s accounting system and control procedures.
An audit document that reflects the major components of an amount reported in the financial statements is referred to as a(n):
lead schedule.
The primary objective of final analytical procedures is to:
assist the auditor in assessing the validity of the conclusions reached on the audit.
The substantive analytical procedure known as trend analysis is best described by:
the examination of changes in an account over time.
