Chapter 5: audit evidence Flashcards
assertions about classes of transactions and events and related disclosures for the period under audit
- occurrence
2.completeness - accuracy
4.cutoff
5.classification
6.presentation
assertions about account balances and related disclosures at the period end
- existence
8.rights and obligations
9.completness - accuracy, valuation and allocation
- classification
- presentation
audit program
a listing of details of the audit procedures to be used when testing controls, conducting detailed substantive audit procedures, and completing the audit
audit evidence
information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based; it is information to which audit procedures have been applied and consists of information that corroborates or contradicts management assertions
4 forms of information to be used as audit evidence
- oral information
2.visual information
3.paper documents
4.electronic information
sufficient
refers to the quantity of audit evidence gathered
appropriate
refers to the quality of evidence gathered
sources of information
- management and internally generated information
- external information sources and other external parties- customers, vendors, lenders
3.auditor
Procedures for gathering audit evidence
- Risk assessment procedures Methods used to gain an understanding of a client and its industry for the purpose of identifying risk of material misstatement.
- Tests of controls Methods used to determine the operating effectiveness of the client’s controls in preventing, or detecting and correcting, material misstatements at the assertion level.
- Substantive procedures. Methods designed to detect material misstatements at the assertion level. Two categories of substantive procedures are tests of details (of account balances, transactions, and disclosures) and substantive analytical procedures.
Substantive procedures.
Methods designed to detect material misstatements at the assertion level. Two categories of substantive procedures are tests of details (of account balances, transactions, and disclosures) and substantive analytical procedures.
Vouching
a type of inspection in which auditors select transactions from a journal or ledger and work backward to examine the underlying source documents; vouching provides evidence for the occurrence or existence assertion.
Tracing
a type of inspection in which auditors select source documents and work forward to follow the transaction through to recording in the journal and ledger; tracing provides evidence for the completeness assertion
inspection of documents and assets
1.vouching
2.tracing
observation
an evidence-gathering procedure that involves watching a process or procedure being carried out by client personnel or another party
inquiry
an evidence-gathering procedure that involves asking questions to gain an understanding of various matters throughout the audit
external confirmation
a procedure in which the auditor corresponds directly with a third party, either in paper or electronic form, and the third party responds directly to the auditor on the matter(s) included in the confirmation
bank confirmation
correspondence sent directly by the auditors to their client’s bank requesting information such as cash held in the bank and details of any loans with the bank and interest rates charged
* Existence. Cash listed on the client’s balance sheet actually exists.
* Accuracy, valuation and allocation. Cash balance is recorded at the proper amount.
* Rights and obligations. Cash is in the client’s name and rightfully owned by the client.
receivable confirmation
correspondence sent directly by the auditors to their client’s customers requesting information about amounts owed to the client by the customer
* Existence
* Rights and obligations
Positive confirmations
ask recipients to reply in all circumstances. If a response cannot be obtained, auditors must perform follow-up procedures.
Negative confirmation
ask recipients to reply only if they disagree with the information provided. If a recipient does not respond to a negative confirmation, it is assumed they agree with the information provided.
recalculation
an audit procedure that involves checking the mathematical accuracy of documents or records
reperformance
an audit procedure that involves the independent execution of procedures or controls that were originally performed by client personnel
analytical procedures
evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data
scanning
a type of analytical procedure in which auditors use their professional judgment to review accounting data to identify unusual or significant items to examine further
auditor specialist
an individual or organization with expertise in a field other than accounting or auditing whose work in that field is used by the auditors to assist in obtaining sufficient appropriate evidence
internal auditors
employees of the client who perform assurance and consulting activities designed to evaluate and improve the effectiveness of the entity’s governance, risk management, and internal control processes
audit documentation
the record of audit procedures performed, audit evidence obtained, and conclusions reached (also called working papers or workpapers)
permanent file
contains client information that is relevant for more than one audit
current file
contains client information that is relevant for the duration of one audit
