Chapter 5 Flashcards
statements made by management regarding the recognition, measurement, presentation, and disclosure of items included in the financial statements
Assertions
Assertions classes of transactions
Occurrence Completeness Accuracy Cut-off Classification
Transactions and events that have been recorded have occurred and pertain to the entity.
Occurrence
All transactions and events that should have been recorded have been recorded.
Completeness
Amounts and other data relating to recorded transactions and events have been recorded appropriately.
Accuracy
Transactions and events have been recorded in the correct accounting period.
Cut-off
Transactions and events have been recorded in the proper accounts.
Classification
recorded assets, liabilities, and equity interests exist
Existence
rights to assets held or controlled by the entity, and liabilities (obligations) of the entity
Rights and obligations
assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded
Valuation and allocation
quantity (sufficiency) and quality (appropriateness) of audit evidence gathered
Sufficient appropriate evidence
extent to which information is logically connected to an assertion
Relevance
extent to which information reflects the true state of the information
Reliability
evidence obtained as a direct written response to the auditor from a third party, in paper form, or by electronic or other medium
External confirmation
a letter sent directly by an auditor to their client’s bank requesting information such as the amount of cash held in the bank (or overdraft), details of any loans with the bank, and interest rates charged
Bank confirmation
a letter sent directly by an auditor to their client’s vendor or supplier requesting information about amounts owed by the client to the vendor or supplier
Payable confirmation
a letter sent directly by an auditor to their client’s credit customers requesting information about amounts owed to the client by the debtor
Receivable confirmation
a letter sent directly by an auditor to a third party, who is asked to respond to the auditor on the matter(s) included in the letter in all circumstances (that is, whether they agree or disagree with the information included in the auditor’s letter)
Positive confirmation
a letter sent directly by an auditor to a third party, who is asked to respond to the auditor on the matter(s) included in the letter only if they disagree with the information provided
Negative confirmation
information that provides evidence about details recorded in a client’s list of transactions (for example, invoices and bank statements)
Documentary evidence
a letter sent to a client’s lawyer asking them to confirm the details of legal matters outstanding identified by management
Legal letter
a letter from the client’s management to the auditor acknowledging management’s responsibility for the preparation of the financial statements and details of any verbal representations made by management during the course of the audit
Management representation letter
responses of key client personnel to auditor enquiries throughout the course of the audit
Verbal evidence
evidence gathered by an auditor checking the mathematical accuracy of the numbers that appear in the financial statements
Computational evidence
inspection of a client’s tangible assets, such as its inventory and fixed assets
Physical evidence
data held on a client’s computer, files sent by e-mail to the auditor, and items scanned and faxed
Electronic evidence
information created by the client (for example, customer invoices, purchase orders)
Internally generated evidence
information created by a third party (for example, supplier statements, bank statements)
Externally generated evidence
the auditor responsible for signing the audit report
Group engagement partner
an auditor who, at the request of the group engagement team, performs work on financial information related to a component for the group audit
Component auditor
an evidence-gathering procedure that involves watching a procedure being carried out by another party
Observation
an evidence-gathering procedure that involves asking questions verbally or in written form to gain an understanding of various matters throughout the audit
Enquiry
an evidence-gathering procedure that involves checking the mathematical accuracy of client records
Recalculation
an evidence-gathering procedure that involves redoing processes conducted by the client
Re-performance
an evaluation of financial information by studying plausible relationships among both financial and non-financial data
Analytical procedures
file that contains client information that is relevant for more than one audit
Permanent file
file that contains client information that is relevant for the duration of one audit
Current file
