Module 15 EXPAND Flashcards
What are the balance sheet assertions?
Completeness Rights and obligations Accuracy valuation and allocation Classification Existence Presentation
CRACE P
What are the Transactions assertions? P+L
Occurrence Classification Completeness Cut off Accuracy
Presentation
OCCCA P
Assertions give the auditor?
A clearer definition of specific audit objectives
A clearer demonstration of work done o
What are the three sources of evidence?
Auditor generated
Client generated
Third party/externally generated
Auditor generated source of evidence
Highest reliability, least susceptible to client manipulation
Highest ability to assess quality
Lowest susceptibility to director manipulation
Client generated source of evidence
Medium reliability (depend on controls)
Medium ability to assess quality
Highest susceptibility to manipulation
Third party/ external sources of evidence
Varied reliability- form independent knowledgeable third party more reliable than a close source
Lowest ability to assess quality
Varied susceptibility to director manipulation- independent third party less than source close to client
What are the four categories of nature?
Most reliable:
Natural
Created
Rational
Testimonial
Least
What is natural evidence?
Auditor physically witnesses
Primary evidence
Most reliable
What is created evidence?
Documentary evidence
Secondary evidence
Should always use originals
What is rational argument?
Neither the physical presence of something nor documentary evidence
Evidence obtained through applying logic
Circumstantial evidence
What is testimonial evidence?
Spoken evidence
Verbal evidence
Lease reliable
What is the principle of synergy?
Where evidence from two independent sources is consistent, the sum of assurance gained is greater than the sum of the individual parts
2+2=5
What is the principle of diminishing marginal effect?
Where evidence obtained from one source only, further consistent evidence form the same source will increase the total assurance by less than the sum of its parts
2+2=3
If keep going to same source, evidence worth less each time
What are the decision regarding selection of sampling approach determined by?
Characteristics of the population
ROMM
Audit efficiency of the approach
What is sampling?
Testing less than 100% of populations on a stat or non stat basis such that all units have a chance If selection
In order to give reasonable basis on which to draw conclusions about whole population
What are sampling units?
Individual items making up a population
What are the sample selection methods?
Random selection
Monetary unit sampling
Haphazard selection
What is random selection?
Items selected on a random basis through random number generators
What is monetary unit sampling?
Type of value weighted selection
Results directed to larger value items which can result in smaller sample sizes
E.g cumulative goes over 15,30,45
What is haphazard selection?
Selects the sample with no structured technique but would avoid unconscious bias or predictability to ensure all have chance of selection
Form of non statistical sampling
Extrapolating sample
only possible where items selected using appropriate method
Hard error = have seen it
Soft error = extend sample
Evidence collection techniques?
Inspection (of assets = substantive, of documents = both) Confirmation (substantive) Analytical procedures (substantive) Recalculation (substantive) Enquiry (both) I CARE
Observation (test of controls)
Reperformance (test of controls )
Substantive testing vs test of controls
Test of control is a test of something the client has already done
Substantive is the auditors own test
Substantive testing can be broken down into?
Substantive analytical procedures (testing total population)
Tests of details (specific items)
What are substantive procedures?
Undertakes to detect possible misstatements in f/s
Testing the numbers at year end
Typical audit programme should include?
Client name Year end date Title Description of substantive procedures Assertions met by each Initials of who competed Date completes Work paper reference
Approach to analytical procedures?
Form expectation
Compared to figure
Differences investigated and substantiated
Conclude ether correct or misstatement identified
What are the five analytical procedure techniques? When do they happen
Comparison (P) Ratio analysis (P) Reasonableness tests (P+ST) Trend analysis (ST) Large and unusual items review (ST)
What are reasonableness tests?
Using information available to develop a model or formula to calculate expected balance
High quality
Most accurate will constitute a proof in total
Can be complicated
Components are backed up by evidence
What is trend analysis?
Looking at changes in an account balance over a number of periods
What is large and unusual items review?
Review is the content of a general ledger account for items that appear unusual by nature or size
Substantive testing techniques
Inspection Confirmation Analytical procedures Recalculation Enquiry
I CARE
