Chapter 5 Evidence and Documentation

Question 1

Managements Assertions about classes of transactions and events, and related disclosures, for the period under audit

Answer 1

Occurence, Completeness, Authorization, Accuracy, Cutoff, Classification, and Presentation

Question 2

Managements Assertions about account balances and related disclosures, at the period end

Answer 2

Existence, Rights and Obligations, Completeness, Accuracy, valuation, and allocation, classification, and presentation

Question 3

Audit Evidence

Answer 3

The information used by the auditor in arriving at the conclusions on which the audit opinion is based

Question 4

Understanding audit evidence

Answer 4

-information used as audit evidence
-sufficiency and appropriateness of audit evidence
-evaluation of audit evidence

Question 5

Information used as accounting evidence

Answer 5

-Accounting records: records of initial entries and supporting records, general and subsidiary ledgers, journal entries, and other adjustments to financials not reflected in journal entries, worksheets and spreadsheets supporting cost allocations, computations, reconciliations, and disclosures, contracts
-Other Information: minutes of meetings, confirmations from third parties, industry analysts reports, comparable data about competitors, control manuals, information obtained by the auditor from inquiry, observation, and inspection

Question 6

Sufficiency of Audit Evidence

Answer 6

the measure of the quantity of audit evidence
-greater risk of misstatement requires higher quantity of audit evidence
-higher quality of audit evidence results in a lower quantity of audit evidence (inverse relationship b/w sufficiency and appropriateness)

Question 7

Appropriateness of Audit evidence

Answer 7

the measure of the quality of audit evidence
-relevance
-reliability
*independent source outside the entity
*effectiveness of internal control
*Documentary evidence
*Original documents

Question 8

Evaluation of audit evidence

Answer 8

Proper evaluation of evidence requires an understanding of the:
-types of evidence available
-relative reliability of audit evidence
*auditor should be thorough in searching for evidence and unbiased in its evaluation

Question 9

Audit Procedures

Answer 9

Specific acts performed by the auditor to gather evidence about whether specific assertions are being met
*Risk assessment procedures
*Test of Controls
*Substantive Procedures

Question 10

Audit Program

Answer 10

a set of audit procedures prepared to test assertions for a component of the financial statements

Question 11

Audit procedures for obtaining audit evidence

Answer 11

-Inspection
-Observation
-Inquiry
-Confirmation
-Recalulation
-Reperformance
-Analytical Procedures

Question 12

Inspection

Answer 12

Evidence obtained from external documents is more reliable than evidence obtained from internal documents

*Physical examination of assets

-Journal Ledger->Source Documents (vouching/occurence)
-Source Documents->Journal or Ledger (tracing/completeness)

Question 13

Observation

Answer 13

The process of watching a process or procedure being performed by others
*not only that the count is correct but that the client cannot add to the count after the observation of the count has taken place

Question 14

Inquiry

Answer 14

In conducting inquiry, the auditor should:
-Consider the knowledge, objectivity, experience, responsibilitym and qualifications of the individual to be questioned
-Ask clear, concise, and relevant questions
-Use open or closed questions appropriately
-listen actively and effectively
-consider the reactions and responses and ask follow up questions
-evaluate the response

Question 15

Confirmation

Answer 15

Audit evidence obtained by the auditor as a direct written response to the auditor from a third party

Question 16

The reliability of evidence obtained through external confirmations may be affected by factors such as:

Answer 16

-The form of the confirmation
-prior experience with the entity
-The nature of the information being confirmed
-The intended respondent
*Positive vs. Negative A/R confirmations

Question 17

Positive A/R Confirmations

Answer 17

The customer of the client MUST respond
More effective
if customer does’t respond the auditor must perform additional testing

Question 18

Negative A/R Confirmations

Answer 18

The customer only has to respond if they disagree with the balance sent to them
more efficient, takes less time

Question 19

Recalculation

Answer 19

Checking the mathematical accuracy of documents or records
-testing of client software or using our own software like IDEA

Question 20

Reperformance

Answer 20

The auditor’s independence execution of procedures or controls that were originally performed by company personnel

Question 21

Analytical Procedures

Answer 21

Evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data

Question 22

Audit Documentation

Answer 22

The auditors record of the audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached

Three purposes:
-to provide support for the audit report
-to aid in the planning performance, and supervision of the audit
-to provide a focal point for reviewing work of subordinates; to provide a basis for quality reviews

Question 23

Audit Documentation should:

Answer 23

-demonstrate how the audit complied with auditing and related professional practice standards
-supports the basis for the auditors conclusions concerning each material financial assertion
-demonstrate whether the underlying accounting records agreed or reconciled with the financial statements
-include a written audit program detailing auditing procedures necessary and experienced reviewer to:
*understand the nature, timing, extent, and results of audit procedures, evidence obtainedm and conclusions reached
*Determine who performed and reviewed the work, as well as the dates of the work and reviews

Question 24

Format of Audit Documentation

Answer 24

-Heading
-Indexing and cross referencing
-Tick marks

Question 25

Ownership of audit documentation, archiving, and retention

Answer 25

-All audit documentations is the property of the auditor, including documents prepared by the entity at the auditors requesti
-The Sarbanes-Oxley Act of 2002 requires audit documentation to be retained for a number of years from the completion date of the engagement
*7 years
-Audit documentation should be organized so that audit team members and others can find evidence supporting financial statement accounts

Question 26

Purposes of Analytical Procedures

Answer 26

Risk Assessment Procedures
Substantive Analytical Procedures
Final Analytical Procedures

Question 27

Risk Assessment Procedures

Answer 27

Used to assist the auditor to better understand the business and to plan the nature timing, and extent of audit procedures

Question 28

Substantive Analytical Procedures

Answer 28

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

Question 29

Final Analytical Procedures

Answer 29

used as an overall review of the financial information in the final review stage of the audit

Question 30

Types of Analytical Procedures

Answer 30

-Trend analysis
-Ratio analysis
-Reasonableness Analysis