Evidence and Performance of Substantive Testing

Question 1

What is Audit Evidence?

Answer 1

Pertains to all information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based

Question 2

Two Classification of Audit Evidence

Answer 2

1. Information contained in the accounting records underlying the financial statements (underlying accounting data)
2. Other Information (corroborating information)

Question 3

What are information contained in the accounting records underlying the financial statements

Answer 3

Generally includes information that supports and corroborates management assertions and any information that contradicts such assertions

Question 4

Sufficiency of Audit Evidence

Answer 4

Measure the quantity of audit evidence which is affected by:
1. Assessment of the risk of material misstatement; and
2. Quality of such audit evidence

Question 5

Appropriateness of Audit Evidence

Answer 5

1. Measure of the quality of audit evidence; that is its relevance and its reliability in providing support for the conclusion on which the auditor’s opinion is based

Question 6

Relevance of Evidence

Answer 6

Relevant if it relates to the assertion. Affected by the direction of the testing

Question 7

Reliability of Evidence

Answer 7

Regarded as reliable if it is dependable to signal the true state of an assertion

Question 8

What are the Assertions

Answer 8

1. Presentation and Disclosure
2. Existence
3. Rights and Obligations
4. Completeness
5. Valuation

Question 9

Major Audit Procedures

Answer 9

1. Risk Assessment Procedures
2. Test of Controls
3. Substantive Testing

Question 10

Substantive Testing

Answer 10

Audit procedures designed to detect material misstatement at the assertion level

Question 11

Test of Details

Answer 11

Procedures performed by the auditor to gather evidence that the actual details of balances, disclosures, and underlying transactions associated with an entity’s financial statements are fairly stated

Question 12

Test of Transaction and Events

Answer 12

Applied to account balances comprised of small volume of transactions representing relatively material amounts

Question 13

Test of Balances

Answer 13

Applied to account balances representing comprised of large volume of transactions representing relatively immaterial amounts

Question 14

Nature Timing and Extent of Substantive Procedures of Lower Detection Risk

Answer 14

Nature: Apply more effective procedures
Timing: Closer or nearer to year end
Extent: Increase the extent of substantive procedures

Question 15

Nature Timing and Extent of Substantive Procedures of Above Minimum Detection Risk

Answer 15

Nature: Less effective procedure may be applied
Timing: Procedures may be applied at interim or several dates
Extent: Auditor may reduce the extent of substantive procedures

Question 16

External Confirmation

Answer 16

Audit evidence obtained as a direct written response to the auditor from a third party in paper form or by electronic or other medium

Question 17

Types of External Confirmation

Answer 17

1. Positive- Confirming party responds directly to the author indicating whether the confirming party agrees or disagrees with the information in the request
2. Negative- Confirming party responds directly to the auditor only if the confirming party disagrees with the information provided in the request

Question 18

Evaluating the Evidence Obtained

Answer 18

1. A response without exception- Indicates agreement with the information provided in the request or providing requested information without exception
2. A response deemed unreliable- auditor identifies factors that give rise to doubts about reliability of the response t o a confirmation request, further evidence shall be obtained to resolve doubts
3. A non-response- In case of each non-response, alternative audit procedures shall be perforemd
4. A response with exception- indicating an exception, auditor will investigate exceptions to determine whether or not they are indicative of misstatements.