l5 : audit evidence & assertions Flashcards
what is directional testing?
a way of collecting audit evidence to check that it lines up with financial statements. checks for existence (whether there has been overstatement of assets) & completeness (whether there has been understatement of liabilities).
what are the two criteria that audit evidence must be?
- sufficient (enough)
- appropriate (relevant & reliable)
what is controls testing in relation to audit evidence?
testing systems & processes. detects whether internal processes are effective at detecting / preventing misstatements.
what is substantive testing in relation to audit evidence?
testing the numbers in financial statements. auditor gathers evidence to identify misstatements and verify that FRs are complete, relevant & accurate.
state the 7 types of audit assertions.
Completeness
Accuracy
Valuation
Existence
Cut off
Obligations & rights
Presentation & disclosure
explain completeness as a type of audit assertion.
has everything been included that needs to be included?
explain accuracy as a type of audit assertion.
have things been calculated correctly?
explain valuation as a type of audit assertion.
have assets, impairments, stocks etc been valued correctly, in line with relevant policies?
explain existence as a type of audit assertion.
is the asset really existent? has there been an overstatement?
explain cut off as a type of audit assertion.
are the entries in the correct period?
explain obligations & rights as a type of audit assertion.
do they actually have rights over this asset?
explain presentation & disclosure as a type of audit assertion.
how is it laid out in the account? is it laid out correctly?
how does the audit review process work?
test & review the riskiest areas. team members carry out assertions. incharge reviews teams work. manager reviews incharges work. partner reviews managers work.
what are the 5 methods to test audit assertions?
Analytical procedures
Enquiry
Inspection
Observations
U do it (recalcUlate)
explain analytical procedures as a type of audit procedure.
auditor caluclates an expectation for balances based on :
- prior periods
- budgets & forecasts
- industry info
- predictive estimates
explain enquiry as a type of audit procedure.
auditor asks relevant person for info about process, control or balances. enquiry alone isnt sufficient - oral evidence is weak. uses open questions. eg. how did you calculate this balance?
explain inspection as a type of audit procedure.
inspect relevant documents to back up balances. relevant docs include :
- confirmations from bank
- purchase invoices
- sales invoices
- supplier statements
- bank reconciliation
explain observations as a type of audit procedure.
observing a process or procedure. often used in controls testing. eg. observe inventory count / reconciliation being performed
explain u do it / recalculate as a type of audit procedure.
reperform important procedures or recalculate balances. used for the accuracy assertion (cAvecop). eg. count items during stock count, reperform bank reconciliation, calculate dep expense