Chapter 4 - Audit Evidence Flashcards
Audit Evidence
Supports Audit Opinion
Ways to gather audit evidence
- Risk assessment procedures
- Test of controls
- Substantive procedures
- Other audit procedures
Substantive testing purpose
Detect material misstatement in F/S
Sufficient audit evidence
Valid & Relevant
Hierarchy of audit evidence
A - Auditor’s direct knowledge & observation
E - External evidence
I - Internal evidence
O - Oral evidence
Substantive procedures
$ balances & transaction totals & disclosure amounts
Predictability
- IS accounts are more predictable
- Accts w/ management discretion are less predictable
Confirmation
HAVE to be in writing
Relevant Assertions
- Account Balances
- Transactions and Events
- Presentation and Disclosure
Segregation of Duties
- A Authority
- R Record Keeping
- C Custody
Positive Confirmations
- Large $
- Expected errors
- Poor IC
Negative Confirmations
- Low Risk
- Small $
- Expect customer attention
Blind Copy
Forcing recvd dept. to count (# computers)
Four functions
- Purchasing
- Receiving
- Accounts Payable
- Treasury
A/P Confirmations
NOT REQUIRED
Cash Schemes
- Lapping
- Kiting
Lapping
Today’s check for yesterday’s check.
Prevent - Lockbox OR inspect check deposit date vs. receivable credited date
Kiting
Recording cash at 2 places @ same date (ex. 12/31)
GAAS Requirement
OBSERVATION of beginning AND ending inventory
Permanent Impairment
Ex. Greece & Spain - Euro Debt
PPE Revaluation
ONLY under IFRS
Related Parties
- Affiliates
- Principal Owners
- Management
- Member of immediate fam
May indicate Related Party trans.
- Compensating balance arrangements
- Loan guarantees
- Unusual & nonrecurring transactions @ year end
- Different terms than market
- Nonmonetary
Accounting Estimates
- FMV
- Impairment
- Revenue Rec.
Fair Value Recording
- Consistent year to year
- Past track record is accurate
- Justified changes of approach
- Appropriate to industry
Level 3 - DCF
Discounted Cash Flows
Why are there lawyer fees??
Pending litigation??
Letter to client’s attorneys
Prepared by MANAGEMENT, sent by auditor
Sufficient Appropriate Audit Evidence
Main Goal
