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adm 3349 > chap 5 > Flashcards

chap 5 Flashcards

1
Q

physical evidence

A

gathered thru inspection to assess conditions of tangible assets and to reconcile to records

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2
Q

assertions for physical evidence

A
  1. existence
  2. completeness
  3. inspection of maintenance evidences AVA
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3
Q

verbal evidence as type of evidence

A
  1. used when gaining undertanding abt client and its internal controls
  2. Not adequate alone rather used to corroborate other forms of evidence

3, documented in the auditor working papers as a record of key discussions

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4
Q

verbal evidence def

A

responses of key audit personnel to enquiries from adtr thru’out the audit process

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5
Q

documentary evidence def

A

1.providing information abt the clients details recorded in the list of trsn

  1. includes invoices, supplier stent, bank stmt, legal agreement, minutes of meetings
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6
Q

documentary evidence Assertion

A

1.R&O,

2.AVA,

3.CLASSIFICATION,

4.PRESENTATION ,

5.EXISTENCE,

6.COMPLETENESS,

7.ACCURACY

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7
Q

bank confirmation def

A

1.sent to the bank to request information abt cash held by the client, details abt loans, pledges and bank charges and interest.

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8
Q

bank confirmation assertion

A

1.R&O,

2.accuracy

3.completeness

4.AVA

  1. existence
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9
Q

external confirmation def

A

sent to third party requesting info abt the matter included in the letter

evidence obtained as a direct response to from 3rd party to auditor .

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10
Q

PAYABLE Confirmation

A

1.sent to suppliers to confirm details of outstanding amt owed by client

2.only sent when adtr has complete list of suppliers (to ensure completeness)

  1. also when when zero or small balances to ensure that there is no unrecorded payables esp. when sig. balances are owing in the prior year
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11
Q

PAYABLE Confirmation assertion

A

1.R&O,

2.AVA ,

3.COMPLETENESS

4.ACCURACY

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12
Q

receivable Confirmation explained

A
  1. sent to client’s customers to confirm amt owed to the clients
  2. criteria to consider:
    -age of account
    -materiality of acc
    -location of the customers
  3. do not confirm intention to pay, thus only confirm amt owed
  4. can also be sent to 3rd party.g in a consignment scenario to confirm for inventory
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13
Q

receivable Confirmation assertion

A
  1. existence
  2. R&O
  3. VERY LITTLE AVA
  4. COMPLETENESS (CONSIGMNT)
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14
Q

positive confirmation explained

A

1.client to respond in all circumstances

  1. superior evidence than negative confirmation
  2. primary assertion tested is existence. still needs to perform other procedures as risk that customer/debtor will not not throughly check the amt and just sign the confirmation
  3. also provides evidence for AVA
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15
Q

negative confirmation

A
  1. to respond only if amt is incorrect
  2. non response is assumed that the information is correct
  3. undermines existence assertion, for example.g a non response from fictitious customers is deemed as correct amt. this leads to inaapppropriate conclusion as revenue overstated
  4. best used to corroborate other evidence
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16
Q

computational evidence explained + assertions

A
  1. checks for mathematical accuracy of numbers from F/S
  2. evidence for AVA
  3. complex calculations or calculations related to foreign currency
  4. when conducting recomputations, an adtr will trace amt included in the calculations to externally prepared documentary evidence.
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17
Q

electronic evidence+ assertions

A
  1. data held in client computers, files emailed to adtrs and faxes or scanned items
  2. provide evidence for occurrence assertion e.g the process of a sales trans involving emails between clients and the customer
  3. extent to rely depend on the effectiveness of internal controls as adtr needs to consider factors like information risk
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18
Q

legal agreement/representation

A

1.letter sent to client lawyers requesting to confirm legal matters outstanding identified by mgt

  1. CAS 501 requires adtr to gather evidence abt legal matters of their clients
  2. adtrs review evidence like minutes meeting .has reason to believe that legal issue will affect f/s
  3. will send a legal letter to clients’ lawyers to ask their opinion, details abt the legal issue in which lawyer is in disagreement with client
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19
Q

mgt representation letter/ representation

A

letter outlining mgt responsibility in preparing fair fs, compliance with acc stats and law and key discussion occurring with adtrs during audit

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20
Q

persuasiveness of audit evidence

A

adtrs need persuasive evidence to corroborate clients’ trsns and balance

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21
Q

types of persuasiveness of audit evidence

A
  1. internally generated evidence
  2. externally generated evidence held by client
  3. externally generated evidence sent directly to adtr
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22
Q
  1. internally generated evidence
A

information created by client

least persuasive as held by client thus greater opportunity to manipulate or alter the information

can be in hard copy or soft copy

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23
Q
  1. Externally generated evidence held by client
A

a little more persuasive as produced by third party but not too reliable as it can still be altered

if photocopies are provided to adtrs instead of originals, less reliability

24
Q
  1. externally generated evidence sent directly to adtr
A

most persuasive and most reliable as evidence sent directly to adtr from third party( making it independent)

even better if sourced from reliable trustworthy and independent third party

25
Q

when Using Work of an Expert?

A

when auditor does not have required knowledge skills or experience to assess validity of a trn or acc

26
Q

an Expert

A

someone with the required skills, knowledge and experience required to aid an auditor when gathering sufficient appropriate evidence

27
Q

Using Work of an Expert steps

A
  1. assess whether an expert is required
  2. determine the scope of work to be carried out
  3. selecting auditor with competence, capability to complete the work and their objectivity

4 assess the work done

  1. draw conclusion based on their assessment as the ultimate responsibility to design an opinion is that of the adtr
28
Q

assess whether an expert is required

A

1.when adtr require assistance in form of an expert opinion or corroborate other evidence found e.g appraiser for the value of property

  1. this will depend pn the knowledge of the audit team, complexity of the matter being assessed and the availability of other appropriate evidence
  2. the greater the risk of MM of the matter being assess, the greater likelihood to involve an expert
  3. the less knowledge, the higher the risk of MM and the less corroborating evidence available he greater likelihood to involve an expert
29
Q

determine the scope of work to be carried out

A

1.the auditor should set out the nature, timing and extent of work carried out by expert

2.adtr should be involved as the judgement of expert is used as audit evidence required in forming the adtr opinion

3.should use written instructions to cover areas that the expert will report on and how the work used will be used by adtr

30
Q

selecting expert with competence, capability to complete the work

A

should condor capability to complete the work, evaluate qualifications, knowledge and experience

31
Q

objectivity of expert

A

should be independent to increase reliability of conclusion formed since adtr will depend on that to design their opinion

32
Q

assessing expert work done/report

A

1.expert should write report so that auditor who is not expert in the field can also undertand the technical content of the report

  1. expert should detail every stage of the process to explain what helped them draw their conclusion. should also include data source and estimation models used

3, auditor consider consistency of assumption, conclusion and information from the expert work in relation to the entity

33
Q

draw conclusion based on their assessment as the ultimate responsibility

A

1.responsibilty of auditor to draw an opinion.

  1. should determine the quality of the evidence provided by expert and whether it is reliable and objective
34
Q

Using work of another adtr

A
  1. when the group engagement partner( who will sign audit report) will rely on the work of another adtr to provide evidence on certain components of the FS
  2. occurs when the the client operates in numerous locations or has significant assets in numerous locations
35
Q

Using work of another adtr (before)

A
  1. audit engagement team should consider capacity to undertake the audit
  2. should consider the proportion of FS assigned to the component adtr
  3. group engirt team should audit the majority of the fs and should be knowledgeable about the components of the FS assigned to the component adtr
36
Q

Using work of another adtr (consideration)

A
  1. capacity , reputation of the other audit team
  2. work completed by other auditor meets the requirement and stds such objectivity
37
Q

Using work of another adtr (process)

A
  1. both adtrs will discuss the detailed procedures to be used and group engmnt partner will review at the main conclusion drawn from work of the component auditor
  2. grp engmnt partner will spend more time if the components are at high risk of MM
  3. less time if competent auditor has a good reputation and has done a previous audit work for the group engment team .
38
Q

Using work of another adtr (conclusion)

A
  1. group engment team will use evidence provided by the component adtr when forming their opinion on the fs

2.group engment team having concern//discuss finding with component auditor and its implication with clients mgt

  1. if group engment team finds MM impacting fs then will issue modified opinion

4.If the group engagement partner is concerned with not having gathered sufficient appropriate audit evidence regarding the component of the financial statements audited, will ask that further evidence be gathered.

5.If the component auditor cannot access sufficient evidence, the engagement partner will consider issuing a modified audit opinion due to a scope limitation.

6.This will occur when the group engagement partner is unable to obtain additional evidence on the elements of the component audited by a component auditor.

39
Q

current file

A

file containing client information relevant to current audit

40
Q

current file include

A
  1. details of the testing and evidence gathered for this audit
  2. mgt letter about the deficiencies uncovered in the internal controls

3., representation letter and confirmation letter

  1. engagement letter
  2. letters from third party such as bank and lawyers

6.minutes of meeting pertaining to current audit

41
Q

permanent file

A

1.file containing client information relevant to several audit

2.has to be updated at the start of every audit

42
Q

permanent file contains

A

1.client address

2.contract and lease agreement

3.key personnel info

4.accounting studs and policies

5.f/s and their audit report from previous years

6.flowcharts and narratives detailing the internal control systems

7.reports sent to the client during previous audit

43
Q

drawing conclusion

A
  1. sufficient appropriate evidence must be gathered to give opinion abt the fair presentation of FS
  2. if internal controls not effctve, adtr adopt substantive approach to increase reliance on evidence gathered from test of trsn and acc bal

3, if internal control effetve , adtr will test controls and gather further evidence thru subs, testing of trsn of acc and balances

  1. will base opinion on the gathered evidence
44
Q

audit working papers

A

documentation of the audit work done by the adt team as evidence of the work done

45
Q

documentation- audit working papers

A

1.provide record of the work performed and evidence collected to help them form an opinion

  1. will document every phase the audit from risk assent to risk response
  2. documentation will vary from client to client depending on factors like risks assessed , level of judgment involved, persuasiveness of evidence
46
Q

audit working papers contains

A

name of clients, names of preparers and reviewers, cross referencing, audit period, file reference

47
Q

audit data analytics

A

1.examination of large datasets, usually using computer software, for exceptions, outliers, trends, and other useful info

  1. results are usually documented as a graph, chart, or table.

3.They often allow the auditor to test large populations very quickly.

  1. extent to which an auditor can rely on a client’s data will depend a great deal on the internal controls the client has in place. An auditor must consider the effectiveness of their client’s internal controls over data gathering before planning an audit data analytic.

5.This includes assessing the quality of the data with respect to accuracy, completeness, and reliability

48
Q

analytical procedure

A

an evaluation of financial information by studying plausible relationships among both financial and non-financial data

49
Q

re-performance

A
  1. redoing processes conducted by the client

2.When conducting substantive testing, client estimations are re-performed to verify amounts calculated by the client

50
Q

inquiry

A
  1. asking questions verbally or in written form to gain an understanding of various matters throughout the audit
  2. an auditor may document that information more formally and ask the other party to the discussion to sign an agreement that the auditor has recorded the discussion accurately.
51
Q

observation

A

1.only provides evidence of a process at the time the auditor observes it being carried out.

2.An auditor will need to determine whether there is evidence that the procedures observed have been applied consistently throughout the period under audit.

52
Q

5.3 Practice Question 5

A

to try

53
Q

examples of Externally Generated Evidence HELD

by the Client

A

1.supplier invoices and statements,

2.customer orders, bank statements,

3.contracts,

4.lease agreements,

5.tax assessments.

54
Q

examples of Externally Generated Evidence SENT Directly to the Auditor

A

1.bank confirmations,

2.customers’ confirmations,

3.correspondence with the client’s lawyers,

4.including confirmations and representations,

  1. expert valuations.
55
Q

examples Internally Generated Evidence

A

records of cheques sent,

copies of invoices

statements sent to customers,

purchase orders,

company documentation regarding policies and procedures,
contracts,

minutes of meetings,
journals, ledgers, trial balances, spreadsheets, worksheets, reconciliations, calculations, and computations

56
Q

Assertions about classes of transactions and events, and related disclosures for the period under audit

A

Occurrence
Transactions and events that have been recorded or disclosed have occurred and pertain to the entity.

Completeness
All transactions and events that should have been recorded have been recorded, and all related disclosures that should have been included are included.

Accuracy
Transactions and events have been recorded appropriately and related disclosures have been appropriately measured and described.

Cut-off
Transactions and events have been recorded in the correct accounting period.

Classification
Transactions and events have been recorded in the proper accounts.

Presentation
Transactions and events are appropriately aggregated or disaggregated and clearly described; related disclosures are relevant and understandable.

57
Q
A

adm 3349 (9 decks)

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