4/28/2015 CPA JUAN M. GARCIA MERCED EVIDENCE & DOCUMENTATION CONT 4023.

04/18/2304/18/23 CPA JUAN M. GARCIA MERCEDCPA JUAN M. GARCIA MERCED

EVIDENCE & EVIDENCE & DOCUMENTATIONDOCUMENTATION

CONT 4023CONT 4023

Audit Evidence DecisionsAudit Evidence Decisions

1. Which audit procedures to use

2. What sample size to select for a given procedure

3. Which items to select from the population

4. When to perform the procedures (timing)

Audit PlanAudit Plan

It includes a list of the audit proceduresthe auditor considers necessary.

Most auditors use computers to facilitatethe preparation of audit plans.

Sample sizes Items to select Timing of the tests

Audit DocumentationAudit Documentation

Audit documentation is the principal recordof auditing procedures applied, evidenceobtained, and conclusions reached bythe auditor in the engagement.

Audit DocumentationAudit Documentation

Purposes of audit documentation

Ownership of audit files

Confidentiality of audit files


PurposePurpose Sufficient competent evidential matter Sufficient competent evidential matter

is to be obtained trough inspection, is to be obtained trough inspection, observation, inquiries, and observation, inquiries, and confirmations to afford a reasonable confirmations to afford a reasonable basis for a conclusion.basis for a conclusion.


AUDIT EVIDENCEAUDIT EVIDENCE Any information that corroborates or Any information that corroborates or

refutes an assertion. Must be:refutes an assertion. Must be:• Competent – relevant and valid (Quality)Competent – relevant and valid (Quality)• Sufficient – QuantitySufficient – Quantity

There is an inverse relationship There is an inverse relationship between competent and sufficiency.between competent and sufficiency.

Six Characteristics of Reliable Six Characteristics of Reliable EvidenceEvidence

1. Independence of provider

2. Effectiveness of internal controls

3. Auditor’s direct knowledge

Six Characteristics of Reliable Six Characteristics of Reliable EvidenceEvidence

4. Qualification of individualsproviding the information

5. Degree of objectivity

6. Timeliness

Persuasiveness and CostPersuasiveness and Cost

In making decisions about evidencefor a given audit, both persuasivenessand cost must be considered.

The auditor’s goal is to obtain asufficient amount of appropriateevidence at the lowest total cost.

Competence of Types of Competence of Types of EvidenceEvidence

Type of evidence Independence of provider Effectiveness of client’s internal controls Auditor’s direct knowledge Qualifications of provider Objectivity of evidence

Types of Audit EvidenceTypes of Audit Evidence

1. Physical examination

2. Confirmation

3. Documentation

4. Analytical procedures

5. Inquiries

6. Recalculation

7. Reperformance

8. Observation


TYPES OF EVIDENCETYPES OF EVIDENCE Physical evidence- Physical evidence-

provides evidence provides evidence about existence but about existence but needs to be needs to be supplemented by supplemented by other types of other types of evidence.evidence.

ConfirmationConfirmation

Information Source

AssetsAssets

Cash in bankAccounts receivableNotes receivableOwned inventory out on consignmentInventory held in public warehousesCash surrender value of life insurance

BankCustomerMakerConsigneePublic warehouseInsurance company


Information Source

LiabilitiesLiabilities

Accounts payableNotes payableAdvances from customersMortgages payableBonds payable

CreditorLenderCustomerMortgagorBondholder


Information Source

Owners’ EquityOwners’ Equity

Shares outstanding Registrar andtransfer agent

Other InformationOther Information

Insurance coverageContingent liabilities

Bond indenture agreementsCollateral held by creditors

Insurance companyBank, lender, and client’s legal counselBond holderCreditor


TYPES OF EVIDENCETYPES OF EVIDENCE DocumentsDocuments

• Created outside the company and transmitted Created outside the company and transmitted directly to the internal auditorsdirectly to the internal auditors

• Created outside the company and held by the Created outside the company and held by the companycompany

• Created and held within the companyCreated and held within the company

DocumentationDocumentation

It is the auditor’s inspection of theclient’s documents and records.

Internaldocuments

Externaldocuments

Analytical ProceduresAnalytical Procedures

Understand the client’s industry and business

Assess the entity’s ability to continue as agoing concern

Indicate the presence of possible misstatementsin the financial statements

Reduce detailed audit tests

InquiriesInquiries

It is the obtaining of written or oral information in response to questions from the auditor.

RecalculationRecalculation

It involves rechecking a sample of calculationsmade.

ReperformanceReperformance

It is the auditor’s independent tests of accounting procedures or controls thatwere originally done.

ObservationObservation

It is the use of the senses to assess activities.

The auditor may tour the plant to obtain a generalimpression of the facilities.


AUDIT PROCEDURESAUDIT PROCEDURES TimingTiming NatureNature Extent Extent CostCost


WORKING PAPERSWORKING PAPERS

Functions:Functions:1.1. Assignment and coordinating audit Assignment and coordinating audit

workwork

2.2. Supervising and reviewing the work Supervising and reviewing the work of assistantsof assistants

3.3. Supporting the reportSupporting the report

4.4. Complying with the stds of field Complying with the stds of field work (IIA standards)work (IIA standards)

5.5. Planning and conducting the next Planning and conducting the next auditaudit


OTHER CONSIDERATIONSOTHER CONSIDERATIONS• Confidential natureConfidential nature• Ownership of working papersOwnership of working papers


TYPES OF WORKING TYPES OF WORKING PAPERSPAPERS

Administrative working papersAdministrative working papers• Audit planAudit plan• Time budgetTime budget• Internal control documentationInternal control documentation

Working trial balanceWorking trial balance Lead schedulesLead schedules Adjusting journal entriesAdjusting journal entries


Types of Working PapersTypes of Working Papers Supporting schedulesSupporting schedules Analysis of a ledger accountAnalysis of a ledger account Corroborating documentsCorroborating documents


ORGANIZATIONORGANIZATION Current files – one file per year Current files – one file per year Permanent file – preserves working papers Permanent file – preserves working papers

that show relatively few or no changesthat show relatively few or no changes• LeasesLeases• Pension plansPension plans• Labor contractsLabor contracts• Formal agreementsFormal agreements


Questions?!?!?!?!?!?!?!? Questions?!?!?!?!?!?!?!?

4/28/2015 CPA JUAN M. GARCIA MERCED EVIDENCE & DOCUMENTATION CONT 4023.

Documents

Transcript of 4/28/2015 CPA JUAN M. GARCIA MERCED EVIDENCE & DOCUMENTATION CONT 4023.