Topic 3 - Fundamental Audit Concepts Flashcards
what are the two categories of Financial Report Assertions?
- Assertions about transactions and events - Sales
- Assertions about account balances - AR
what are the six assertions about transactions and events?
- completeness
- cut-off
- classification
- occurrence
- presentation
- accuracy
what are the six assertions about account balances?
- completeness
- classification
- existence
- accuracy, valuation and allocation (amounts measured and described properly)
- rights and obligations (holds/controls)
- presentation (summed/described/relevant reliable)
How does an auditor use the assertions?
- to assess potential misstatements
- hereby designing audit procedures that are responsive to the assessed risks.
where does audit evidence get sourced from? (5)
- accounting records/data
- financial report/client representation
- source documents
- third party representations
- physical evidence
what are four examples of External Sources of Audit Evidence?
- third parties
- market
- industry sources
- databases
What two things are the Sufficiency and Appropriateness of Audit Evidence based on?
- Quantity - how much/ which items
- Quality - relevance and reliability
what is the Reliability of Audit Evidence based on? (5)
hierarchy of quality- what makes evidence better quality?
￭Independence- sourced outside of the client
￭Internal Control - functioning well
￭Direct Knowledge - obtaining evidence directly
￭Objectivity- written better than spoke
￭Origin- original better than copy
what three aspects relate to Relevance of Audit Evidence?
Audit objective:
￭Direction of testing
￭Timeliness
￭Appropriateness of procedure
What are the two different type of Direction of testing? what are they testing for? what is the direction of each?
Tracing - completeness - source doc/item to journal
Vouching - occurrence - journal to source doc/item
what are seven audit procedures that the auditor carries out?
- analytical procedure (ratio analysis, trends, changes from yr to yr)
- enquiry (oral or written internal or external)
- external confirmation
- inspection
- observation
- re-calculation
- re-performance (independently execute procedures)
what impacts Data Quality and Predictability? (10)
￭Internal or external sources ￭Effective or ineffective ICS ￭Audited or unaudited ￭Multiple or single sources ￭Independence of the source ￭Stability of the environment ￭Direct or indirect relationships ￭Level of aggregation ￭Degree of management discretion ￭Cash or accrual
what impacts the Selection of Audit Procedures? (9)
￭Understanding of the entity and its environment
￭Assessment of business risk and inherent risk
￭Nature and assessment of internal controls
￭Materiality of the item
￭Financial report assertion
￭Experience from prior audits of the client
￭Results of other audit procedures
￭Source and reliability of available information
￭Persuasiveness of audit evidence obtained
