Chapter 5: Audit Evidence

Question 1

Assertions

Answer 1

statements made by management regarding recognition, performance, measurement and disclosure of items included in the financial statements.

Question 2

What are the six assertions on the income statement?

Answer 2

1) Occurence
2) Completeness
3) Accuracy
4) Cut-Off
5) Classification
6) Presentation

Question 3

Occurence

Answer 3

transactions and events that have been recorded or discloses have occurred and pertain to the entity.

• Auditor gathers evidence that the transaction and disclosures recorded by the client actually took place and relate to the entity.

Question 4

Completeness

Answer 4

all transaction and events that should have been recorded have been recorded, and all related disclosures that should have been included are included.

• Auditor gathers evidence that all transactions and disclosures have been recorded by the entity.

Question 5

Accuracy

Answer 5

transactions and events have been recorded appropriately and related disclosures have been appropriately measured and described.

• Auditor gathers evidence that transactions and disclosures are recorded by the client at the appropriate amounts.

Question 6

Cut-Off

Answer 6

transactions and events have been recorded in the correct accounting period.

• Auditor gathers evidence that the transactions have been recorded by the client in the correct period.

Question 7

Classification

Answer 7

transactions and events have been recorded in the proper accounts.

• Auditor gathers evidence that transaction is in correct account.

Question 8

Presentation

Answer 8

transactions and events are appropriately aggregated or disaggregated and clearly described, related disclosures are relevant and understandable.

• Auditor ensures events/transactions appropriately aggregated or disaggregated.

Question 9

What are the assertions on the balance sheet?

Answer 9

• Existence
• Rights and Obligations
• Completness
• Accuracy, Valuation, Allocation
• Classification
• Presentation

Question 10

Audit Evidence

Answer 10

the information that an auditor uses when arriving at their opinion on the fair presentation of their client’s financial statements.

Question 11

What are the six types of audit evidence?

Answer 11

• evidence confirmations
• documentary evidence
• verbal evidence
• computational evidence
• physical evidence
• electronic evidence

Question 12

External Confirmations

Answer 12

auditor requests third party to confirm matter in confirmation letter, including the following.

• Banks: confirm cash balances, securities, loans.
• Creditors: confirm amount owed, terms, by client.
• Debtors: confirm amount owed to client.

Question 13

Documentary Evidence

Answer 13

includes invoices, suppliers’ statements, bank statements, and legal agreements. Auditor can verify information in client’s records to supporting external documents to confirm accuracy, existence, and rights and obligations.

Question 14

Verbal Evidence

Answer 14

auditor documents discussions with client management and staff. Used to gain understanding of internal controls; corroborate other evidence.

Question 15

Computational Evidence

Answer 15

auditor checks mathematical accuracy; re-adding, can include complex re-calculations, verifying formulas.

Question 16

Physical Evidence

Answer 16

gathered by inspecting assets, to assess condition, to reconcile to client’s records.

Question 17

Electronic Evidence

Answer 17

includes data held on client’s computer, emails to auditor, and scans and faxes.