Study Unit 10 - Evidence — Objectives And Nature Flashcards
Must auditors obtain conclusive audit evidence in forming audit opinions?
No, auditor’s typically rely on persuasive, rather than conclusive, audit evidence in for making audit opinions.
What are some inherent limitations of audits?
- The nature of financial reporting (e.g., use of accounting estimates)
- The nature of audit procedures (e.g., possibility of collusion)
- The need to perform the audit
- Within a reasonable period of time (time constraint)
- To achieve a balance between benefit and cost (cost constraint)
Define the sufficiency of audit evidence.
Sufficiency is the measure of the quantity of evidence.
Define the appropriateness of audit evidence.
Appropriateness is the measure of the quality of evidence, which depends on (1) relevance and (2) reliability of the audit evidence.
What are the factors affecting the reliability of audit evidence?
- Source of evidence
- Nature of evidence
- How the evidence is obtained
List the three types of audit procedures used for gathering audit evidence.
- Risk assessment procedures
- Tests of controls
- Substantive procedures
Give examples of audit procedures used for gathering audit evidence.
- Inspection
- Observation
- Inquiry
- External confirmation
- Recalculation
- Reperformance
- Analytical procedures (including scanning)
What is the direction of testing for the completeness assertion?
Tracing
- The auditor should trace the transaction from the source documents to the accounting records
What is the direction of testing for the occurrence assertion?
Vouching
- The auditor should vouch the transactions from the accounting records to the source documents of the physical assets.
When is audit evidence considered reliable?
Audit evidence is more reliable and persuasive when it is
- Obtained from independent sources
- Obtained from external sources
- Obtained directly
- In documentary form
What are external confirmations?
External confirmations are direct written responses from a third party. Oran responses are not external confirmation requests.
External confirmation requests often address assertions about
Account balances.
Compare a (1) positive confirmation request, (2) negative confirmation request, and (3) blank confirmation request.
Type of Confirmation
Request Description
Positive Reply = agreement = confirmed
Negative Reply = disagreement = not confirmed
Blank Reply = omitted information in the confirmation filled and confirmed
What is audit documentation usually called?
Working papers/workpapers
What is included in auditor’s working papers?
- What work was performed (nature, extent, timing, and results of procedures)
- Who performed and reviewed the work
- When the work was performed/reviewed
- Audit evidence obtained
- Conclusions reached
What is the purpose of audit documentation?
Audit documentation allows an experienced auditor to understand
- The procedures performed under GAAS or other requirements
- The results and evidence obtained
- Significant findings or issues
- Conclusions drawn
- Judgements made
How are tickmarks used?
Tickmarks document work performed and issues uncovered during field work. A legend should define the tickmarks used on the working paper.
What is a working trial balance?
A working trial balance ordinarily is used to record the year-end ledger balances prior to the audit. Reclassification and adjustments are accumulated on the trial balance to reflect the final audited balances.
What are lead schedules?
Lead schedules are summaries of detailed schedules. For example, a cash lead schedule may summarize findings recorded on the cash in bank, petty cash, and count-of-cash-on-hand detail schedules.
What are permanent files and current files?
Type Description Examples
Permanent Records with - Articles in incorporation
Files continuing - Bylaws
audit significance - Contacts
Current files Records relating - Results of procedures
current year only - Confirmations
What is the time required for completing the assembly of the final audit file for (1) nonissuers and (2) issuers?
Nonissuers 60 days following the report release date
Issuers 45 days following the report release date
Who owns the audit documentation, the audit client or the auditor?
Audit documentation is the property of the auditor.
What is the required minimum retention period of audit documentation for (1) nonissuers and (2) issuers?
Nonissuers At least 5 years from the report release date
Issuers At least 7 years from the report release date
Define generalized audit software (GAS).
GAS is software that is written to interface with many different client systems. It is useful for both tests of controls and substantive procedures.
Give examples of the pros and cons of generalized audit software (GAS).
Pros
- Less computer expertise required for auditors
- Client information can be assessed without detailed knowledge of the client’s systems
- Ability to run on a variety of systems
Cons
- Modifications may be required for a specific audit
- Inability to examine items not in machine-readable form
- Some packages may process only sequential files
- Limited application
What is artificial intelligence (IA)?
AI is computer software designed to perceive, reason, and understate. Business applications are AI are called expert systems.
