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ACC470 > Chapter 5: Evidence and Documentation > Flashcards

Chapter 5: Evidence and Documentation Flashcards

1
Q

Types of Management Assertions

A
  • Transaction & Events
  • Account Balances
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2
Q

Transaction and events assertions

A
  • Occurrence
  • Accuracy
  • Cutoff
  • Completeness
  • Classification
  • Presentation
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3
Q

Account balance assertions

A
  • Existence
  • Rights & Obligations
  • Accuracy, valuation, and allocation
  • Completeness
  • Classification
  • Presentation
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4
Q

PCAOB Assertions

A
  • Existence or occurence
  • Completeness
  • Valuation or allocation
  • Rights and obligations
  • Presentation and disclosure
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5
Q

Concepts of Audit Evidence

A
  1. Nature of audit evidence (Accounting Records & Other Information)
  2. Sufficiency and appropriateness of audit evidence
  3. Evaluation of audit evidence
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6
Q

Sufficiency

A

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

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7
Q

Appropriateness

A

QUALITY of audit evidence (higher quality evidence; lower quantity needed)

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8
Q

Two types of Appropriateness of Audit Evidence

A
  1. Relevant
  2. Reliable
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9
Q

Relevant Appropriateness of Audit Evidence

A

Relationship to the assertion or to the objective of the control being tested

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10
Q

Reliable Appropriateness of Audit Evidence

A

Whether a particular type of evidence can be relied upon to signal the true state of an assertion

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11
Q

Factors that influence the reliability of evidence

A
  • Independence of the source
  • Effectiveness of internal control
  • Auditor’s direct personal knowledge
  • Documentary evidence
  • Original documents
  • Qualifications of the provider
  • Degree of objectivity
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12
Q

Types of evidence

A
  • Internal
  • External
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13
Q

Internal Evidence

A

Prepared/edited by entity (purchase orders, overhead cost allocation sheet, materials requisition form)

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14
Q

External Evidence

A

Prepared/edited by external party (bank statement, remittance advice, contract signed by both parties, vendor invoice)

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15
Q

Types of Audit Procedures

A
  • Inspection
  • Observation
  • Confirmation
  • Inquiry
  • Recalculation
  • Reperformance
  • Analytical procedures
  • Scanning
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16
Q

Inspection

A

Physical examination of assets or documents

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17
Q

Observation

A

Watching a process or procedure being performed (someone else does it, low reliability cause people know you’re watching)

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18
Q

Confirmation

A

Obtaining information from a third party in WRITING

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19
Q

Inquiry

A

Consider qualifications and experience; ask clear questions; consider reactions (low reliability cause people can lie, but you learn a lot; better face to face)

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20
Q

Recalculation

A

Determining mathematical accuracy of documents (footing a statement; high reliability because auditor does it)

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21
Q

Reperformance

A

Auditor’s execution of procedures or controls that were originally performed as part of the internal control system (high reliability because auditor does it)

22
Q

Analytical procedures

A

Study of plausible relationships of financial and non-financial data

23
Q

Scanning

A

Review of account data for significant or unusual items

24
Q

Types of Analytical Procedures

A
  1. Trend analysis
  2. Ratio analysis
  3. Reasonableness analysis
25
Q

Trend Analysis

A

Analysis of changes in an account over time

Takes last year’s account balances and compares to current balance

Need to compare multiple years to discover trend

26
Q

Ratio Analysis

A

Comparison, across time or to a benchmark, of relationships between financial statement accounts or between an account and non-financial data

More effective than Trend Analysis

27
Q

Reasonableness Analysis

A

Involves forming an expectation using a model (EX: depreciation expense can be modeled by taking book value divided by average useful life for lass of assets)

Since it forms an explicit expectation, reasonableness analysis typically forms a more precise expectation than trend or ratio analysis

28
Q

Risk Assessment Procedures

A

Used to gain an understanding of the entity, and determine nature, timing, and extent of audit procedures

29
Q

Substantive Analytical Procedures

A

Used to obtain evidential matter about particular assertions related to account balances or classes of transactions

30
Q

Final Analytical Procedures

A

Overall review of the financial information in the final review stage of the audit

31
Q

Transactions and Events and Related Disclosures: Occurrence/Existence

A

DURING THE PERIOD
Transactions and events that have been recorded or disclosed have occurred, and such transactions and evens pertain to the entity (sometimes referred to as validity)

32
Q

Accounts Balances and Related Disclosures: Occurrence/Existence

A

END OF THE PERIOD (B/S)
Assets, liabilities, and equity interests exist

33
Q

PCAOB Assertions: Occurrence/Existence

A

Assets or liabilities of the company exist a given date, and recorded transactions have occurred during a given period

34
Q

Account Balances and Related Disclosures: Rights and Obligations

A

END OF THE PERIOD (B/S)
The entity holds or controls the rights to assets, and liabilities are the obligations of the entity

35
Q

PCAOB Assertions: Rights and Obligations

A

The company holds or controls the rights to the assets, and liabilities are obligations of the company at a given date

36
Q

Transactions and Events and Related Disclosures: Completeness

A

DURING THE PERIOD
All transactions and events that should have been recorded have been recorded, and all related disclosures that should have been included in the financial statements have been included

37
Q

Account Balances and Related Disclosures: Completeness

A

END OF THE PERIOD (B/S)
All assets, liabilities, and equity interests that should have ben recorded have been recorded, and all related disclosures that should have been included in the financial statements have been included

38
Q

PCAOB Assertions: Completeness

A

All transactions and accounts that should be presented in the financial statements are so included

39
Q

Transactions and Events and Related Disclosures: Accuracy

A

DURING THE PERIOD
Amounts and other data relating to recorded transactions and events have been recorded appropriately, and related disclosures have been appropriately measured and described

40
Q

Account Balances and Related Disclosures: Accuracy/Valuation, and Allocation

A

END OF PERIOD (B/S)
Assets, liabilities, and equity interests have been included in the financial statements at appropriate amounts, and any resulting valuation or allocation adjustments have been appropriately recorded, and related disclosures have been appropriately measured and described

41
Q

PCAOB Assertions: Valuation and Allocation

A

Asset, liability, equity, revenue, and expense components have been included in the financial statements at appropriate amounts

42
Q

Transactions and Events and Related Disclosures: Cutoff

A

DURING THE PERIOD
Transactions and events have been recorded in the correct accounting period

43
Q

Transactions and Events and Related Disclosures: Classification

A

DURING THE PERIOD
Transactions and events have been recorded in the proper accounts

44
Q

Account Balances and Related Disclosures: Classification

A

END OF PERIOD (B/S)
Assets, liabilities, and equity interests have been recorded in the proper accounts

45
Q

Transactions and Events and Related Disclosures: Presentation

A

DURING THE PERIOD
Transactions and events are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework

46
Q

Account Balances and Related Disclosures: Presentation

A

END OF PERIOD (B/S)
Assets, liabilities, and equity interests are appropriately aggregated or disaggregated and clearly described, and related disclosures and relevant and understandable in the context of the requirements of the applicable financial reporting framework

47
Q

PCAOB Assertions: Presentation

A

The components of the financial statements are properly classified, described, and disclosed

48
Q

Vouching

A

Occurence
- Picking a transaction on the GL to match a source doc

49
Q

Tracing

A

Completeness
- Picking a source doc to make sure it is in the GL

50
Q

Why can’t completeness ever be tested starting from the statements?

A

Violating the completeness assertions means that something that should be in the statements, isn’t. Therefore, how are we supposed to know that something isn’t in the statements by just looking at it?

ACC470 (8 decks)

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