Chapter 3--Evidence Flashcards
What is meant by sufficient Evidence?
Sufficiency is the measure of quantity of evidence. it is affected by:
1. Assessed risk of material misstatement.
2. Materiality and complexity of item.
3. Auditor’s Knowledge and experience of business.
4. Quality of audit evidence.
5. Strength of Internal Control system of client
What is meant by Appropriate Evidence?
it is the measure of quality of audit evidence. it is affected by:
1. Relevance
2. Reliability
What is meant by Relevance?
It deals with logical connection between assertion and audit procedures.
For example, to test occurrence relevant procedure will select and test recorded amounts.
if auditor wants to test completeness, then what would be relevant procedure?
Select and test information outside accounting system, (select supporting documents and check their recording in t-accounts)
if we want to check internal controls then how can relevant evidence be obtained?
By performing test of controls which will identify conditions indicating deviation from controls
if we want to check FS then how can relevant evidence be obtained?
By substantive procedures which will identify misstatements
What is meant by Reliability?
it depends on its source, nature, and circumstances under which it is obtained.
What are the reliability criteria of evidence?
- it should be in original form
- it should be in Documentary form
- it should be from External source
- it should be from strong internal controls if internally generated
- it should be obtained Directly
What are the types of audit procedures?
- Inquiry (of a person)
2, Observation (of a procedure) - Inspection (Of an item)
- External confirmation
- Recalculation
- Reperformance
- Analytical Procedures
Audit procedures can be performed for different purposes such as…
1.Risk assessment
2. Test of controls
3. Substantive procedures
what are the three phases of obtaining evidence?
- Risk assessment procedures
- Test of controls
- Substantive procedures
What is meant by risk assessment procedure?
The auditor’s procedures to obtain understanding of entity and its internal control to assess the risk of material misstatements at financial level and assertion level.
for example:
inquiries of management and others level
What are the risks at financial statement level?
Risks that affect FS pervasively.
1. Risk of fraud by Management
2. Risk of management override of control
3. lack of competence and integrity of management
4. Going concern issues
What are the responses to risk at FS level?
- Increase level of professional skepticism specially during audit of judgmental areas
- Adequate planning and reduce materiality.
- Assigning more experienced and specialized staff
- Increase supervision and review of audit work performed.
- Incorporating unpredictability to audit procedures.
- Making changes to audit procedures
- More audit procedures at period end rather than at interim date.
- obtaining more reliable audit evidence
- Evaluate whether selection and application of accounting policies is appropriate, and significant estimates are reasonable
what are the risks at assertion level?
Risks that do not affect FS pervasively.
1. risk that precious and portable assets may not exist.
2. risk that a liability may not be recorded
3. risk that complex transaction may not be accurately recorded
4. risk that large transaction at year end may be incorrectly recorded.
