Chapter 5: Evidence and Documentation Flashcards
Types of Management Assertions
- Transaction & Events
- Account Balances
Transaction and events assertions
- Occurrence
- Accuracy
- Cutoff
- Completeness
- Classification
- Presentation
Account balance assertions
- Existence
- Rights & Obligations
- Accuracy, valuation, and allocation
- Completeness
- Classification
- Presentation
PCAOB Assertions
- Existence or occurence
- Completeness
- Valuation or allocation
- Rights and obligations
- Presentation and disclosure
Concepts of Audit Evidence
- Nature of audit evidence (Accounting Records & Other Information)
- Sufficiency and appropriateness of audit evidence
- Evaluation of audit evidence
Sufficiency
QUANTITY of audit evidence (greater risk of misstatement; higher quantity needed)
Evidence must be relevant to the assertion being tested
Evidence may have varying levels of reliability
Appropriateness
QUALITY of audit evidence (higher quality evidence; lower quantity needed)
Two types of Appropriateness of Audit Evidence
- Relevant
- Reliable
Relevant Appropriateness of Audit Evidence
Relationship to the assertion or to the objective of the control being tested
Reliable Appropriateness of Audit Evidence
Whether a particular type of evidence can be relied upon to signal the true state of an assertion
Factors that influence the reliability of evidence
- Independence of the source
- Effectiveness of internal control
- Auditor’s direct personal knowledge
- Documentary evidence
- Original documents
- Qualifications of the provider
- Degree of objectivity
Types of evidence
- Internal
- External
Internal Evidence
Prepared/edited by entity (purchase orders, overhead cost allocation sheet, materials requisition form)
External Evidence
Prepared/edited by external party (bank statement, remittance advice, contract signed by both parties, vendor invoice)
Types of Audit Procedures
- Inspection
- Observation
- Confirmation
- Inquiry
- Recalculation
- Reperformance
- Analytical procedures
- Scanning
Inspection
Physical examination of assets or documents
Observation
Watching a process or procedure being performed (someone else does it, low reliability cause people know you’re watching)
Confirmation
Obtaining information from a third party in WRITING
Inquiry
Consider qualifications and experience; ask clear questions; consider reactions (low reliability cause people can lie, but you learn a lot; better face to face)
Recalculation
Determining mathematical accuracy of documents (footing a statement; high reliability because auditor does it)
Reperformance
Auditor’s execution of procedures or controls that were originally performed as part of the internal control system (high reliability because auditor does it)
Analytical procedures
Study of plausible relationships of financial and non-financial data
Scanning
Review of account data for significant or unusual items
Types of Analytical Procedures
- Trend analysis
- Ratio analysis
- Reasonableness analysis