Sufficient Appropriate Evidence M5

Question 1

What might be considered sufficient, appropriate audit evidence?

Answer 1

#1 Auditor’s Direct Personal Knowledge

• Analytical procedures provide the auditor with direct personal knowledge, but because these procedures often are based on internal accounting data, the evidence obtained is not as reliable as that obtained from confirmations.

#2 External Data

• Confirmations are among the most reliable types of evidence, as they constitute external evidence sent directly to the auditor.
• The auditor’s direct personal knowledge (obtained through observation, examination, inspection, or recalculation) is one of the most reliable forms of evidence.
• Customer purchase orders and bank statements are both external evidence.
• Vendor invoices and packing slips are both external evidence.
• Bills of lading and accounts receivable confirmations are both external evidence.

#3 Internal Data is less reliable than confirmations.

• Inquiry of client personnel provides evidence that is not particularly reliable, which is why it often needs to be corroborated by the auditor.
• Shipping documents and receiving reports are internally-generated evidence

#4 Oral Evidence

Question 2

What does PCAOB say make audit evidence relevant?

Answer 2

• Timing of the audit procedure.
• Only if the audit procedure is designed to test for an understatement/overstatement.
• If the audit procedure is designed to directly test an assertion.

Question 3

What does risk assessment affect? (NET)

Answer 3

It affects the nature, extent, and timing of audit procedures

Question 4

What are the different types of evidence?

Answer 4

Corroborating Evidence:

• Confirmations.
• Performing inquiries of client management or outside parties.
• Examining the minutes of a board meeting.

Accounting Record Evidence

• Records of initial entries.
• Supporting records such as invoices, checks, journal entries, contracts, ledgers, worksheets.

Question 5

What does PCAOB say about the reliability of evidence?

Answer 5

The circumstance(s) under which audit evidence is gathered pertains to the reliability of evidence.

Question 6

What are the PCAOB Standards for analytical procedures in the overall review stages?

Answer 6

• According to PCAOB standards, analytical procedures performed during the overall review stage may be similar to procedures performed as risk assessment procedures in the planning stage.

Question 7

What is the difference between corroborative evidence and client recorded accounting data?

Answer 7

Corroborative evidence supports managements assertions and management accounting data.

Corroborative Evidence:

• Board Minutes
• confirmations
• industry analyst reports
• competitors’ data
• info obtained by management’s specialist
• observation, inquiry, and inspection

Client Recorded Accounting Data:

• Sales Invoices for ex.

Question 8

How does the auditor obtain audit evidence?

Answer 8

• By performing substantive procedures, test of controls, and other audit procedures.
• By performing risk assessment procedures.
• Audit evidence can be gathered for the current audit by reviewing work papers from the previous audit.