Chapter 15 - Audit Evidence Flashcards
This PSA explains what constitutes audit evidence in an audit of financial statements, and deals with the auditor’s responsibility to design and perform audit procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion
PSA 500 “Audit Evidence”
Is all the information used by the auditor in arriving at the conclusions on which the audit opinion is based, and includes both information contained in the accounting records underlying the financial statements and other information
Audit evidence
True or False:
Auditors are expected to address all information that may exist.
False.
Is the measure of the quality of audit evidence; that is, its relevance and its reliability in providing support for the conclusions on which the auditor’s opinion is based
Appropriateness (of Audit evidence)
Is the measure of the quantity of audit evidence.
Sufficiency (of audit evidence)
The quantity of the audit evidence needed is affected by the auditor’s assessment of the ____________________ and also by the ______________ of such audit evidence.
risks of material misstatement; quality
The ultimate goal of an audit
To express an opinion as to whether the financial statements are presented fairly in accordance with financial reporting standards.
Assertions used by the auditor fall into the following categories (3):
- Assertions about classes of transactions and events for the period under audit
- Assertions about account balances at the period end
- Assertions about presentation and disclosure
Assertions about classes of transactions and events for the period under audit (5)
- Occurrence
- Completeness
- Accuracy
- Cutoff
- Classification
Assertions about account balances at the period end (4):
- Existence
- Rights and obligations
- Completeness
- Valuation and allocation
Assertions about presentation and disclosure (4):
- Occurrence and rights and obligations
- Completeness
- Classification and understandability
- Accuracy and valuation
Determination as to whether evidential matter is valid or competent for audit purposes rests on the auditor’s __________________ giving regard to the pertinence, objectivity, and timeliness of the evidence, and to the existence of other evidential matter corroborating the conclusion to which it leads
Professional judgement
Is responsible for the preparation of the financial statements based upon the accounting records of the entity.
Management
True or False:
Accounting records alone provide sufficient audit evidence on which to base an audit opinion on the financial statements.
False.
The auditor needs to obtain other audit evidence.
Other information that the auditor may use as audit evidence includes: (5)
- Minutes of meetings
- Confirmations from third parties
- Analysts’ reports
- Information obtained by the auditor from audit procedures (inquiry, observation, inspection)
- Other information developed by, or available to, the auditor
The auditor should obtain _________________ to be able to draw reasonable conclusions on which to base the audit opinion
Sufficient appropriate evidence
True or False:
Ordinarily, the auditor finds it necessary to rely on audit evidence that is persuasive rather than conclusive.
True.
True or False:
Conclusions can be reached about an account balance, class of transactions or control by way of using judgemental or statistical sampling procedures.
True.
The aspects of the accounting and internal control systems about which the auditor would obtain audit evidence are:
- Design (the accounting and internal control systems are suitably designed to prevent and/or detect and correct material misstatements)
- Operation (the system exist and have operated effectively throughout the relevant period)
The reliability of audit evidence is influenced by its source: ________ or ________, and by its nature: ________, __________, or ___________.
internal, external;
visual, documentary, oral
True or False:
Audit evidence is more reliable when it is obtained from independent sources outside the entity.
True.
True or False:
Audit evidence that is generated internally is more reliable when the related controls imposed by the entity are effective.
True.
True or False:
Audit evidence obtained indirectly or by inference is just as reliable as audit evidence obtained directly by the auditor.
False.
Audit evidence obtained directly by the auditor is more reliable.
True or False:
Audit evidence is more reliable when it exists in documentary form.
True.
True or False:
Audit evidence provided by original documents is equally reliable as audit evidence provided by photocopies or facsimiles.
False.
Original documents are more reliable.
Audit evidence is more persuasive when it s of evidence from different sources or of different name are __________
Consistent
When audit evidence obtained from one source is inconsistent with that obtained from another, the auditor ________________
Determines what additional procedures are necessary to resolve the inconsistency
True or False:
The auditor needs to consider the relationship between cost of obtaining audit evidence and the usefulness of the information obtained. Therefore, difficulty and expense involved is in itself a valid basis for omitting a necessary procedure.
False.
While the first sentence is true, the matter of difficulty and expense are not a valid basis is for omitting a necessary procedure.
True or False:
The auditor may have to express a qualified opinion or disclaimer of opinion if he is unable to gather sufficient appropriate audit evidence on a material financial statement assertion in which there is substantial doubt
True
Refers to the trustworthiness or believability of evidence
Competence or appropriateness of evidence
Factors that determine the competence of evidence are (4):
- Relevance of the evidence to the particular assertion being tested
- Objectivity of the evidence
- Qualifications of the provider of the evidence
- Timeliness of the evidence
True or False.
Evidence can be objective or subjective.
True.