Chapter 5 - Audit Evidence and the Technology Driven Audit Flashcards
According to CAS 500, What is audit evidence?
Information, to which audit procedures are applied, that the auditor uses to draw conclusion which form the basis for the auditors opinion and report. It is a decision tool.
What are different types of information
- Oral information
- Visual Information
- Paper documents
- Electronic documents
- Data
What are the 6 common sources of information?
- The entity’s accounting records, management, or other sources internal to the entity.
- An external individual or organization that provides information suitable for a broad range of users, which the entity uses in preparing financial statements.
- Independent sources outside the entity that provide information to the entity, such as bank, legal counsel, customers, or supplies
- A management expert
- An auditor expert
- A service organization
What are examples of oral and visual information?
Oral Information:
- Oral inquires to the accounting staff
- Oral inquires made to external information sources
Visual Information:
- Auditor observing a message that appears on screen for a control restricting access to the IT system
- Inventory observed by auditor through live video stream via smart glasses worn by client representative.
What are examples of paper and electronic documents?
Paper Documents:
- Original sales contract provided by the client
- Written confirmation provided by clients customer
Electronic Documents
- Scanned versions of the sales contract
- Electronic confirmation
What are examples of data evidence?
Data stored in entity’s IT systems
Data from an external information source (social media or government agencies)
What are examples of internal accounting records and internal management sources of information?
Internal Accounting Records
- Aging analysis of accounts receivable
- Sales invoices, sales journals
Management
Internal marketing information developed by the sales function used in making an estimate for a warranty provision.
What are examples of external sources of information from external individuals or organizations, independent sources, and service organizations
External individuals or organizations:
1. Customer reviews of entity’s products from a social media website
2. Credit history data
3. Macro economic data such as historical and forecast employment rates and economic growth rates, or consensus data.
Independent Sources:
External legal counsel analysis of the likely outcome of the pending law suits
Service:
A service organization which processes the entity payroll and provides payroll reports
What are examples of sources of information for management and auditors experts
Management Experts:
- Management employs an actuarial for pension calculations
- Management employs valuation experts for assessment of fair value of an asset
Auditor Experts
- An IT expert included in the audit team for evaluation on the general IT controls.
What is an audit procedure?
What does the nature of audit procedures refer to and how does it change?
It is the technique to collect and analyze information to provide audit evidence. It is how the information is gathered.
The purpose and type, based on the objective of each part of the process.
What are the three broad purpose of the audit procedure?
- Identify and assess risks (Risk Assessment Process)
- Determine if controls are operating efficiently (Test of controls)
- Determine if accounts and assertions are fairly stated (Substantive Procedures)
What is the purpose of the risk assessment procedures?
To obtain an understanding of the entity and the environment, internal controls, and identify and assess the risk of material misstatements.
It sets the stage for audit planning, assessing risk of material misstatement, and developing an appropriate response
When would test controls be initiated? Why?
If through the risk assessment, the auditor understand the internal control policies and procedures. Since risk assessment procedures are not sufficient to conclude that internal controls are operating effectively, you test the controls if you are planning to rely on it heavily.
What are automated tools and techniques (ATT)?
Refers to the use of technology to perform audit procedure and / or obtain audit evidence.
What are examples of ATT?
- AI
- Machine Learning
- Remote Observation Tools
- Robotic Process Automation
- Audit Data Analytics.
What is sufficient and appropriate audit evidence?
Sufficient - Enough
Appropriate - Relevant and reliable
audit evidence to draw reasonable conclusions on which to base the audit opinion.
What type of evidence do auditors use? Why do we use this type of evidence?
The auditors draws conclusions and bases the audit opinion on persuasive (not conclusive) audit evidence. Due to the nature and the cost, we will never likely be 100% confident, but they must be reasonably sure their response is correct.
What are three factor considerations to relevance and reliability of the audit evidence?
- The source of the information
- Relevance of the information provided by the source
- Reliability of the information provided by the source. (quality controls and independence )
What is relevance?
Refers to information that has a logical connection with the purpose of the audit procedure and, when appropriate, with the assertion or control being tested.
What factors are considered in assessing relevance?
- To which classes of transaction, account balances, or disclosures (including relevant assertions) is the information relevant
- To what period of time does the information relate?
- What level of detail or precision is needed, given the purpose of the audit procedure.
What is reliability?
The degree to which the evidence can be believable or worthy of trust.
What is the reliability of information?
The degree to which the information is believable and worthy of trust, which depends on the nature and source of the information
What are the five main factors that affect the reliability of information used for audit evidence?
- Accuracy
- Completeness
- Authenticity
- Bias
- Credibility.
What is accuracy in the context of reliability?
The information is free from error and reflects the appropriate time period or point in time.
What is completeness in the context of reliability?
The information includes all the underlying conditions, events, circumstances, and actions / inactions
What is authenticity in the context of reliability?
The source that generated or provided the information is authorized to do so, and the information has not been altered.
What is bias in the context of reliability?
The information is free from intentional or unintentional bias.
What is credibility in the context of reliability?
The source has the competence and capability to generate the information to a required standard, the source can be trusted.
What are the three others factors that affect reliability?
- Nature and form of information
- Controls over preparation and maintenance on information.
- How the information was obtained by the auditor.
Describe the nature and form of information
Nature - Objective, factual evidence is more reliable than evidence that requires considerable judgement. (Physical inventory count vs aging receivables estimation). Depending on the situation, the nature will affect reliability.
Form - Electronic documents are less trusted and the auditor needs to perform additional procedures to ensure authenticity.
Describe controls over preparation and maintenance of information
If you have an original paper document, and you digitize it or create an electronic version, the reliability depends on the controls in the transformation and maintenance, additional procedures may be required to assess reliability ensuring the electronic document is authentic or the controls in transformation are accurate.
If the information is only initiated, recorded, processed, and reported in electronic form, the auditor needed to determine if the controls are operating efficiently. Internal controls assess the accuracy and completeness of information.
Describe how the information was obtained?
Evidence obtained by the auditor is more reliable than information obtained indirectly or by inference. If an auditor performs an analysis it is more reliable than if a controller did it. However if the auditor is un qualified, then it may not be better.
What are the 6 different types of audit evidence produced by audit procedures? How are they produced?
- Physical Evidence - Produces by senses, like examining an intangible asset
- Oral Evidence - Produced by asking questions
- Confirmation Evidence - Produced when confirmed in writing with a third party
- Documentary Evidence - Produced when auditors inspects internal or external documents
- Analytical Evidence - Produced when auditors make conclusions upon comparisons and / or data interrelationships
- Mathematical Evidence - Produced when they do calculations
What are the four factors that determine how do we determine which procedure should be applied?
- Purpose of the test
- The assertion or control being tested
- The nature and form of the information
- Risk of material misstatements
According to CAS 500, What are the 7 different types of audit procedures?
- Inspection
- Observation
- External Confirmation
- Recalculation
- Re-performance
- Analytical
- Inquiry.
What is inspection?
Examination (being physically present or through remote observation) of tangible assets and documents, internal or external, in paper, digital, or other media.
what does the inspection of tangible assets allow auditors to conclude and not conclude with regard to reliable audit evidence?
Conclude - The assets exists, the assets condition and quality
Can Not Conclude - The rights and obligations, and the valuation of the specific tangible being assessed.
What is an internal document? What are three practical example?
One that has been prepared and used within the clients organization and is retained without ever going to an outside party.
- Sales invoices, time reports, exception reports, inventory receiving reports.
What are external documents? What are practical example?
Documents that have been in the hands of someone outside the clients organizations who is a party to the transactions being documented.
- Vendor invoices and insurance policies
What is observation?
Looking at a process or procedure being performed by others. It may be done in person or online.
What is external confirmation?
The auditors receipt of a written or oral response from an independent third party verifying the accuracy of information requested. The response may be in paper or digital media. Facilitated through third party, web based, automated platforms.
What are the 3 factors that affect the reliability of confirmations.
- Characteristics of the third party - Do they have the knowledge and characteristics.
- Relationship of the third party to the entity - Confirmation may be less reliable)
- Subject matter being confirmed - Extremely complex information may be less reliable
How do we ensure that confirmation are reliable?
They must be controlled by the auditor from they time they are prepared until they are returned. If the client controls preparations, send out the confirmation, or receives the response, then the audit evidence has been reduced.
What is recalculation audit procedure?
Checking the mathematical accuracy of information prepared by the client during the period under audit. Done through spreadsheet or audit software.
What is the reperformance audit procedure?
Independent execution of procedures or controls that were originally performed as part of the entity’s accounting and internal control systems.
What are three situations under analytical procedure when the auditor has to investigate?
Auditors have to investigate identified fluctuations or relationships that are inconsistent with other relevant information or differ from expected values by a significant amount.
What are the four purposes of analytical procedures and what “purpose of audit procedure” does it assist?
- Understand the entity and its environment - Risk assessment procedures
- Assess the entity’s ability to continue as a going concern - Risk assessment procedure
- Identify possible misstatements - Risk assessment procedure
- Provide Evidence supporting an account balance
What is an overall analytical review? Why is this important?
Compare the current years unaudited information with prior years audited information.
It allows the auditor to focus on the overall financial statement risks. and assertion level risks.
What is the inquiry audit procedure?
Obtaining audit information from knowledgable people within the entity or outside the entity.
What does the term examine mean in an audit? What type of audit procedure is this?
A reasonably detailed study of a document or record to determine specific facts about it. Inspection
What is a scan in an audit? What type of audit procedure is this?
A less detailed examination of a document or record to determine if there is something unusual warranting a further investigation. It is an analytical procedure.
What does it mean to read in an audit? What type of audit procedure is this?
An examination of written information to determine facts pertinent to the audit and the recording of those facts in a working paper. It is an inspection.
What does it mean to compute in an audit? What type of procedure is this?
A calculation done by the auditor independent of the client. Analytical procedure.
What does it mean to recompute in an audit. What type of audit procedure is this?
A calculation done to determine whether a clients calculation is correct. it is a recalculation procedure.
What does foot mean in an audit? What type of audit procedure is this?
An addition of a column of numbers to determine if the total is the same as the client. Recalculation.
What is a trace in an audit? What type of procedure is this?
- T or F: More frequently, an audit procedure that includes the term trace will also include a section instruction.
The instruction of what details the auditor is tracing and where it is being traced too. It is a recalculation, reperformance, and inspection procedure.
- True
What does the term vouch in an audit mean? What type of audit procedure is this?
The instruction of what details the auditor is tracing, but they start with an entry in the accounting system and retrace it to the original source of information to determine what the auditor is vouching and where it is being traced from and to. It is a recalculation, reperformance, and inspection.
What does the term compare mean in an audit? What type of audit procedure is this?
A comparison of information in two different locations. The instruction should state which information is being compared in as much detail as possible. This is a reperformance
What is a count in an audit? What type of audit procedure is it?
A determination of assets on hand at a given time. This term should only be associated with the type of evidence determined as physical examination. This is an inspection.
What does observe mean in an audit? What type of audit procedure is this?
The act of observation should be associated with the type of evidence defined as observation. It is an observation audit procedure.
What does inquire mean in an audit. What audit procedure is this related to?
The act of inquire should be associated with the type of evidence defined as inquiry. Inquires of client.
What is the key difference between vouching and tracing?
They are complete opposites of each other. The vouch begins at the accounting records and the tracing begins at the supporting documents.
What is vouching?
The use of documentation to support recorded transactions and amounts.
What is tracing?
The use of documentation to determine if transactions or amounts recorded are included in the accounting records.
What are the two most expensive types of procedures? Why?
Inspection (Physical examination) and confirmation. Examination requires the auditor to be present when the client is counting. Confirmation is costly because they must follow careful procedures in preparing, transmitting, and receiving the reports.
What are the three moderately costly audit procedures? Why?
Inspection (In general), analytical and reperformance.
Inspection - Fairly low cost if the client provides the documents and through use of ATT, but if they auditor has to find documents themselves, costs go up. These documents are time consuming, complex, and requires interpretations and analysis, thus quite expensive.
Analytical Procedures - Less expensive as rather than confirming the AR balance, you calculate and review the sales and AR ratios, thus auditors prefer substantive analytical procedures over test of details.
Reperformance - Cost depends on the nature of the procedure being tested, a simple comparison of invoices is cheap, but bank reconciliation is long.
What are the five factors in Designing and Performing an Effective Audit Procedure
- The nature of the procedure
- The timing of the procedure
- The extent of the procedure
- Unbiased
- Clearly written
What are the 5 factors that affect the persuasiveness of audit evidence?
- Nature of the information
- Purpose of the procedure
- Relevant assertion
- Type of procedure
- Automated versus manual procedure.
What is the nature of information?
Information that has been reviewed and verified would likely be more persuasive than information that has not.
What is the purpose of the procedure
Information used for risk assessment procedure does not need to be as precise and detailed (in other words, persuasive) as information used for substantive procedure.
What is relevant assertions?
Inspection of a digital copy of a mortgage may be relevant for the existence assertion but may not provide persuasive audit evidence about valuation.
What is type of procedure - In the context of persuasiveness of audit evidence?
External confirmation may provide more persuasive audit evidence of the absence of material misstatements than inquiry.
What is automated vs manual procedure in the context of persuasiveness of audit evidence?
When performing substantive procedure, the auditor uses ATT to analyze large data sets of transactions, providing more details than a manual procedure.
What is the timing of procedures?
Refers to when audit procedures are actually performed in relation to the period/date to which the audit evidence applies.
What are the factors that affect timing decisions of performing the test?
- When the audit evidence would be the most persuasive (Right time or over the right time)
- Client deadlines.
What does at the right time mean in the context of timing?
If the client has a periodic inventory system and counts inventory at year end, the auditor should observe the inventory count as you can identify errors.
What does over the right period mean?
A random sample of sales transactions for the entire year would be more persuasive than a sample from only the first six months
What does extent of procedures mean?
Refers to the quantity performed (50 samples for substantive procedures and)
What are the 4 approaches that may be used by the auditor for designing and implementing if their task includes selecting items for testing?
- Selecting all items
- Selecting specific items
- Audit sampling
- Combination from all three.
What are the factors that are considered when designing and implementing the counting inventory items.
- Purpose of the procedure
- Manually vs ATT
- Characteristics of the population being tested
- Persuasiveness of the evidence needed.
When writing the audit procedure, what information needs to be included
- Why the test (Assertions or control)
- What is being done
- How is it being done
- When it is being done
- Use audit procedure terms
- If necessary explain the nature, timing, and extent.
What is appropriateness? What does the quality of evidence rely on?
Refers to the quality of evidence
1. Relevance and reliability of the information to be used as audit evidence
2. Effectiveness of the design of the audit procedure
3. Auditors performance of the procedure
What is sufficiency? What is sufficiency based upon?
Refers to the quantity of evidence.
1. Extent of the audit procedures
2. The different types of audit procedure
3. The variety of sources.
What is the quantity of audit evidence affected by?
- Risk of misstatement
- Quality of the evidence
- If there is more risk you will need more evidence, but if the quality of evidence is good than you may need less evidence
What are the combined effects when analyzing the following:
- SINGLE VS MULTIPLE SOURCE OF EVIDENCE
- CONSISTENCY AMONG MULTIPLE SOURCES
- Corroborative vs Contradictory Information
- Information obtained from one source is less persuasive than information obtained from multiple sources.
2.Evidence consistent with all sources is more persuasive than inconsistent evidence. - Make sure to consider all audit evidence when making a conclusion regardless if it contradicts or supports the assertions. Contradicting information may be important even if the source is less reliable.
Describe persuasiveness and cost
This describes that when audit evidence is being collected you need to look at both the cost and the ability of the information to persuade. Evidence will rarely be one type, and you need to consider all the different types of evidence that can be used before selecting which ones to use.
What do auditors do in an analytical procedure? How do auditors develop an expectation?
Compare recorded amounts or ration to the expectations developed by the auditor. By identifying plausible relationships that could be reasonably expected.
What are examples of sources of information that could be used to develop an auditors expectations?
- Financial information from prior periods
- Expectations created by budgets or forecasts
- Relationships among elements of financial information
- Industry data from external sources (Social media is permitted but skepticism must be used)
- Relationships of financial information with relevant non financial information, from internal and external sources.
What are the three purposes of analytical procedures?
- Risk Assessment
- Substantive Analytical Procedures.
- Final Overall Analytical Review.
According to CAS 315, what are auditors required to do through analytical procedures at the risk assessment point in the audit?
Perform preliminary analytical review to the nature of the firm and industry, risk of material misstatements, and develop an appropriate risk response.
According to CAS 520, what is required through analytical procedure at the final overall analytical review?
Perform a final analytical review for material misstatements or financial problems, and help the auditor take an objective look at the audited financial statements.
What are the common types of analytical procedures
- Trend analysis
- Ratio analysis
- Reasonableness Testing
What is the key difference between scanning analytical procedure and the 3 types of analytical procedures?
Scanning searches within accounts or other entity data to find anomalies, whereas the other 3 use aggregated financial information
What is trend analysis? What does trend analysis identify?
Analyzing the changes in accounts over time. It is used to identify variances or unexpected differences, and follow up for explanations.
What are three things that trend analysis allows auditors to do, provide a brief explanation of each.
- Compare the current year balance with preceding years - Auditor easily determines at beginning of year if a particular account needs special attention.
- Compare the detail of a total balance with preceding year - If there is no significant changes, than the underlying details that make a balance should be unchanged. By comparing the details, you can isolate information that needs more attention.
- Compare the current years balance to the balance - Any significant differences between the budget and the actual results may indicate areas that contain potential misstatements, and those with little to now differences in the budget would likely indicate misstatements are unlikely.
What is the short coming of comparing the current year details total balances to previous year total balances?
- Fails to consider the growth or decline in business activity
- Relationships of data to other data, such as sales to COGS are ignored.
What firms/entity’s are budgets most commonly used in as reference for an auditor?
These are most often used in a NFPO or government units as they take their budgets very seriously and are very likely to follow it.
What is ratio analysis?
Comparison of the firms ratio to ratios across time or to a prior year, budget or industry averages.
What is the ratio analysis used to examine?
The relationship between financial statement accounts and between an account and non financial data.
What are the two things that ratio analysis allows auditors to do, provide a brief explanation.
- Compare the firms ratio to industry benchmarks - Provides information about the client performance (like capital structure and borrowing capacity), allowing us as auditors to understand the business and assess likelihood of financial failure.
- Compute ratios and compare to previous years - Provides information to the client about how their business has changed over the years, and allows them to find gaps that they may need to improve.
What is a major weakness of using industry rations?
Since the industry data is a broad average, comparisons may not be manful unless the auditor takes into account the unique characteristics of the client. The clients business is often not exactly the same as the industry.
What is the liquidity ratio?
The ability for the firm to pay off current obligations as they become due.
What are coverage ratios?
How much debt is used to finance the firms operations.
What are profitability ratios?
Measure profit against other significant line items such as sales and total assets.
What are activity ratios?
How effectively the management uses assets to generate income.
What are the five common internal relationships used for comparison.
- Raw Material Turnover
- Sales Commissions / Net Sales
- Sales Returns and Allowances / Gross Sales
- Sales Tax Payable(Current) / Sales Tax Payable (Previous)
- Expense / Total Expense
What is reasonableness testing? What type of analytical procedure is this?
The analysis of accounts, or changes in accounts between accounting periods, which involves the auditor calculating the expected balance for comparison with the actual balance. Substantive analytical procedure, as it provides us with reasonable assurance that the assertions made by the client are accurate.
T or F: Reasonableness test can use statistical and / or non-statistical models such as regression analysis?
True
What are the 4 factors that make analytical procedure reliable, provide a brief explanation.
- Disaggregation of data - The more detailed the level at which the procedure is performed the greater the potential precision. (i.e analyzing revenue overall rather than by product or geographic line)
- Data plau - The more reliable the data the more precise the expectation. When using data not from the clients financial systems, extra caution is required.
- Plausibility and predictability of the relationships - The more plausible and predictable the more precise. Some audit areas are predictable, others do not.
- The type of analytical procedure - The auditor chooses the procedure based on their objectives (purpose of the test - Risk assessment, test of controls, and the substantive test)
What is plausibility? What does predictability depend on?
Refers to whether the relationship to test the assertion rules makes sense.
Factors used, underlying assumptions, and data.
Of all analytical procedures, which is the most precise and which is not.
Least precise - Trend analysis
Most Precise - Reasonableness testing
What are the 4 steps to designing a substantive analytical procedure?
- Develop - Develop an independent expectation .
- Define - Define a significant difference
- Compute - Compute the difference
- Investigate - Investigate significant differences.
T or F - The ATT’s can be used to perform the risk assessment, test controls, and substantive procedures
True
What are the three factors that determine whether an ATT can be used or not?
- The nature of the business. - High volume of similar transactions
- The auditors ability to implement the technology
- Software and Technology used by the Client
What are the two ways that ATT improves audit quality, briefly explain how it benefits auditors.
- Leveraging the computing power to analyze entire data sets - Auditors can focus on the outliers and the exceptions, allowing for deeper insights and finding unusual trends. ATT gives insights as to what matters, rather than random samples conducted by the auditor.
- Increasing the variety of relevant information sources to use for audit evidence. - The accounting records are still the priority, but ATT makes other sources of relevant internal and external more accessible, like IT platforms, to examine unusual trends in an account balance or a transaction.
What is an Audit Data Analytics? (ADA)
Automated tools and techniques designed to discover and analyze patterns, deviations, and inconsistencies.
To extract other useful information in the data for analysis, modelling, and visualization of data.
For the purpose of planning or performing the audit.
What is a descriptive data analytics? What are example?
Examination of data to answer the question what happened. Pie charts, bar charts, line graphs
What is diagnostic data analytics?
Advanced analytics that examines data to answer the question, why did it happen. Drill down reports, data mining/ discovery, and correction of historical data.
What is predictive data analytics? What are examples
Advanced analytics that examine data to answer the question, what is going to happen.
Regression analysis for forecasting, multivariate stats, pattern matching, and predictive modelling.
What is prescriptive analytics? What are examples
Advanced analytics that examine data to answer the question, what should be done.
Graph analysis, simulation, neural networks.
Which data analytics techniques are commonly used in financial statement audits?
Descriptive and diagnostic analytics.
What are the six steps to planning and performing audit data analytics
- Determine if the ADA is appropriate
- Determine if able to access data
- Prepare (Clean) the data
- Evaluate the relevance and reliability of the data
- Interpret results and follow up on exceptions.
- Document planning, performing, and result of ADA
What are the five factors that need to be considered if ADA is appropriate?
- Purpose of the procedure (Risk assessment, test of control, substantive procedures)
- If it provides necessary level of assurance.
- Attributes of the data
- Type of ADA and related tools / techniques.
- Form, content, and visualization.
What are considerations in determining if the data can be accessed?
- Firms use many IT platforms and software across the entity, auditor must determine if they can access it with their available tools. Audit software can access many, but still double check.
- Confidential and proprietary nature of data, the client may not grant access to the databases, networks, etc. Fears of data being deleted or altered, or IT breaches.
What does it mean to clean the data?
Different format and nature of how the data is stored is different across the client, so data fields need to be unified under one standard. Check for missing key data or formats. Sometimes audits cannot occur due to inconsistency
How does the auditor determine if the data from internal sources is reliable and relevant for the ADA?
- Obtain evidence about the accuracy and completeness
- Evaluate whether information is sufficiently precise and detailed. for ADA.
How are the three factors auditors assess to determine if external information is reliable?
- Expertise and reputation of the source - Original form/Primary source more reliable than aggregates
- Extent of regulatory oversight of external source - Reviewed or verified more reliable
- Relationship of source to the entity
What are false positives?
Items flagged by the ADA may not actually be a risk or a problem, and could be the result of incorrectly understanding the facts.
What is the benefit of ADA but the drawback?
The benefit is you can analyze a large sum of information, but there may be many identified exceptions requiring follow ups. This may be serious or it may be a false positive.
What are the 6 documentation requirements?
- The objective of the ADA
- Source of the underlying data
- Procedures performed to determine relevance and reliability
- The design of the ADA
- The Result of the ADA
- The analysis of the results, evaluation of outliers, and exceptions.
What is artificial intelligence?
Computers perform routine, repetitive processes that lead to the computer learning or developing intelligence allowing them to recognize patterns and take actions automatically.
What is machine learning?
The use of statistical techniques that allow the computer to learn from the data in order to progressively improve the performance of the specified task.
What is textual analysis?
Involves examine the content, structure, and functions of messages contained in unstructured data (or text) by applying linguistic theory.
What is predictive analytics?
The use of statistics and modelling techniques to make predictions about future outcomes and performance.
What is the impact of smartphones on improving efficiency?
It is becoming more popular, where third party apps are used or they use their own apps and they record the results of in inventory count procedures.
What is the impact of drones on audit procedures?
Eyes in the sky, reduce practical issues with inspecting and verifying assets in inaccessible places. Allows to check for existence, conditions, and observations.
What is the impact of robotics on auditing? What are the benefits and disadvantages
Benefits: robotics is being used to perform activities that require repletion, copying and pasting data between applications, and reconciling/ cross referencing. Tasks are completed in a fraction of time and reduces error. Auditors can focus on the things that matter.
Disadvantage: Overlying on technology, rather than questioning the client, may inhibit the auditors ability to exercise professional judgement and skepticism.
What its automation bias?
The possibility that auditors become too reliant on machine outcomes and fail to investigate the reliability of the input data and the algorithms.
What are three challenges faced by ATT?
- The predictive reliability of machine learning is dependent on quality of the historical data which may be biased.
- Machine learning in audit is an ethical concern, as you would need to feed it lots of client information, which is not easy to do, thus the AI may lac intelligence.
- Businesses undergo rapid change, AI struggles to keep up.
According to CAS 230, what is audit documentation?
It is the written or electronic record of risk assessments, procedures, or tests performed, information obtained, and the conclusions reached.
According to CAS 230 standards, what defines the documentation to be sufficient?
An experienced auditor, who has ho connection to the audit, can understand the nature, timing, extent of the procedures, results, and conclusions.
What does audit documentation refer too?
It may refer to working papers or work papers, but it is typically kept in an electronic computerized file.
What is the overall objective of audit documentation?
- Aid the auditor in providing reasonable assurance that an adequate audit was conducted in accordance to auditing standards.
What information is required to be in the basis for planning the audit?
- Risk assessment
2 Descriptive information about the internal controls - Time budget for individual audit areas
- Audit program
- Results in the preceding audit years.
Why do we need to record the evidence accumulated and the result of the tests?
Comments to the reader that it was conducted in accordance to GAAS. Auditor must indicate to CPAB and regulators that they followed the audit rules. The evidence was appropriate, sufficient, and timely, and the report was proper.
Why is one objective of the audit documentation support for determining the proper type of auditors report?
The information helps the auditor choose in a particular circumstance. The data is used to evaluate the adequacy of the scope and fairness of financial statements.
Why is one objective of the audit documentation basis for review?
This is the primary frame used by personnel to evaluate if there was sufficient appropriate audit evidence to justify the report. It can also be used for other reports like tax returns or provincial securities commissions.
What is an audit platform?
T or F: Once the document has been submitted, no further changes can be made?
An audit platform is a place where documents are stored, organized, analyzed, and demonstrated. The documents are archived and logged to track which changes were made by specific staff, supervisors, managers, and partners.
True
What does the audit platform track?
It tracks the audit progress, indicating the performance and review status of each audit area. Reviewer notes are presented, tick marks, and other explanations. Allows the document to be accessed remotely.
What is the relationship of the ADA to audit platforms?
ADA output is incorporated automatically, putting lead schedules and risk assessments. There are tools available through the platform.
What are collaboration panels? Is it integrated with the audit platform?
Assist audit teams in communicating and exchanging information with their audit clients. It is a secure method to transferring data rather than email. Typically they are simply integrated into the platform.
According to CAS 230, when does the final version of the audit file need to be prepared?
It needs to be prepared within 60 days after the date of the audit report.
What is a file archives / file freeze?
If any additional information is going to be added after that date, it needs to be separately identified and added at the front of the file, rather than throughout the working paper.
What must auditors be weary about if they add information? What is the benefit of having file archives?
It does not affect the audit conclusion, and it maintains the integrity of the audit conclusion.
What is a permanent file?
Auditors files that contain data of an historical or continuing nature pertinent to the current audit, such as copies of articles of incorporation, by laws, bonds indentures, and contracts.
What is a current file?
All audit files applicable to the year under audit?
What are the three types of current files
- Audit planning - Documentation of early planning
- Risk Assessment - Documentation of Early planning
- Conclusion - Evidence obtained and decisions made.
What are characteristics that must be on the working paper.
- Properly identification such as: Client name, period date, description of information, name of the preparer, date of the preparation, and index code.
- Indexed and cross referenced, like the use of alphabetical letters.
- Clearly indicate the audit work performed.
- Enough information to fulfill the objectives for which the working paper was designed.
- The conclusions that were reached about the segment of the audit under consideration should be plainly stated.
What is a lead schedule?
An audit schedule that contains the detailed accounts from the general ledger making up a line item total in the working trial balance.
What are the three ways to indicate the audit work performed on the working paper?
- A written statement in the form of a memorandum
- Initials or name beside the audit procedures in the audit program.
- Notations directly on the working paper schedules - Using tick marks or written symbols adjacent to the detail on the body of the schedule.
Who has legal authority over the working papers?
Only the auditor has legal authority over the working papers, even if the client made it for the auditor.
What circumstances may arise where the other individuals who are not the auditor can see the working papers?
- Subpoenaed by a court as legal evidence
- Required by the public accountants professional organization in connection with disciplinary proceedings or practice inspections.
What happens to the working papers after the engagement?
After the engagement, they are retained on the PA’s premise for future reference or sent offsite for archiving.
