Documentation, evidence, and sampling Flashcards
What is the purpose of audit documentation?
To support conclusions, provide and overall understanding, and to provide evidence of compliance. They provide a record of planning and performance, supervision and review, and evidence obtained.
Describe the form and content of working papers
Audit documentation must be sufficient to allow another auditor to understand the work, evidence, matters, and conclusions.
Describe the two types of audit file
Permanent file: permanent matters, updated at the start of each annual audit.
Current file: relate to the set of accounts being audited, prepared on each audit.
Retention of working papers
Confidential, secure location, ICAEW requires document retention policy, should be kept for SIX YEARS from the end of the accounting period.
Ownership of working papers
Belong to auditor, can be shown to client, third party with permission, any reports belong to client.
Describe the general procedures for obtaining evidence
Substantive procedures, CAATs, analytical procedures, directional testing, and accounting estimates.
Substantive procedures
Reperformance Observation Analytical procedures Recalculation Confirmation Inquiry Inspection of assets/documents
What are the two types of CAATs?
Test data and audit software
How can data analytics be used?
Transaction analysis, judgemental analysis, and analytical procedures.
Directional testing
Overstatement: start with the accounts, trace to supporting evidence.
Understatement: Start with the reciprocal population, trace back to figure in the accounts.
Audit procedures for accounting estimates
Review and test, use an independent expert, review subsequent events, and test operating effectiveness.
Describe the sampling process
Identify population, identify sampling unit, select sample, identify errors, draw conclusions.
Sampling methods
Statistical: random, systematic, money unit sampling.
Non-statistical: haphazard, sequence.
What to consider when identifying errors and drawing conclusions?
Nature of errors, cause of errors, impact, probable misstatement.
Evaluation of misstatements
The auditor must communicate all misstatements to management and request they correct them. If they decline > modified audit opinion.
