Topic 7 - Sufficient and Appropriate Evidence

Question 1

Purpose

Answer 1

Obtain sufficient and appropriate evidence to be able to draw reasonable conclusions on which to base the audit opinion.

Sufficient = Quantity (Risk, materiality and reliability i.e source)

Appropriate = Quality (Reliable and relevant to FS assertions).

Question 2

Less Reliable v More Reliable

Answer 2

Less:
Obtained from inside the entity
Obtained indirectly
Oral represesentation
Photocopy of document

More:
Obtained from independent sources
Obtained directly
Documented representation
Original document

Question 3

Substantive Procedures (detect material misstatement at as assertation level)

Answer 3

Procedures designed to detect material misstatements at an assertation level

• Test of detail = Specific transactions
• Analytical Procedures = Compare for unusual movements
• Test of Controls = Test the operating effectivness o the internal control

Question 4

Audit Procedures

Answer 4

Inspection - of documents
Inspection - of tangible assets
Observation - of controls performed by others
Enquire - ask knowledgeable persons
Confirmation - Externally
Re-Calculation - Recheck accuracy
Re-Performance - Internal procedures
Analytical Procedures - Compare for unusual movements

Question 5

Assertions

Answer 5

Transactions and Events:

o Completeness – all assets, liabilities and equity interests have been recorded.
o Accuracy – the information processed is correct.
o Classification – the transaction has been allocated to the right account description.
o Cut off – the transaction has been dealt with in the right accounting period.
o Occurrence – that the transaction has taken place.
o Presentation – transactions and events are appropriately aggregated or disaggregated and clearly described (current/ non-current assets).

Account Balances:

o Completeness – all assets, liabilities and equity interests have been recorded.
o Accuracy – the information processed is correct.
o Classification – the transaction has been allocated to the right account description.
o Valuation – assets, liabilities and equity interests are included in the FS at appropriate amounts.
o Existence – Assets, liabilities and equity interests exist.
o Rights and obligations – rights is the ability to have the use of those assets, obligation is the need to pay something over to others.
o Presentation – transactions and events are appropriately aggregated or disaggregated and clearly described (current/ non-current assets).

Question 6

Computer Assisted Audit Techniques (CAAT’s):

Answer 6

o Audit software – software specifically designed for audit purposes. Can extract samples, calculate ratios and check calculations.

o Test data – auditor supervises the process of running data through the client’s system and compare results with expected results.

Question 7

Sampling

Answer 7

Audit procedure, less than 100% of items, all items have a chance of selection.

Statistical:
Random = each item has a chance of selection
Systematic = constant every item (i.e every 40th)
Monetary Unit = based on amount.

Non-Statistical:
Haphazard = Auditor picks with no method
Block = Blocks of items