Copyright © 2007 Pearson Education Canada 1 Chapter 12: Audit Sampling Concepts.
Copyright © 2014 Pearson Education Chapter 7 Nature and Type of Audit Evidence.
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Transcript of Copyright © 2014 Pearson Education Chapter 7 Nature and Type of Audit Evidence.
Copyright © 2014 Pearson Education
Chapter 7
Nature and Type of Audit Evidence
Chapter 7
Nature and Type of Audit Evidence
Copyright © 2014 Pearson Education7-2
Contrast audit evidence with evidence used by other professions.
Identify the four audit evidence decisions that are needed to create an audit program.
Specify the characteristics that determine the persuasiveness of evidence.
Identify and apply the eight types of evidence used in auditing.
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Understand the purposes of audit documentation.
Prepare organized audit documentation.
Describe how technology affects audit evidence and audit documentation.
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Contrast audit evidence with evidence used by other
professions.
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Any information used by the auditor to determine whether the information being audited is stated in accordance with established criteria
The use of evidence is not unique to auditors
Evidence is also used by scientists, lawyers,and historians
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Copyright © 2014 Pearson Education
Identify the four audit evidence decisions that are needed to create an audit program.
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1. Which audit procedures to use
2. What sample size to select for a given procedure3. Which items to select from the population4. When to perform the procedures (timing)
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It includes a list of the audit proceduresthe auditor considers necessary.
Sample sizes Items to select Timing of the tests
Many auditors use audit software packages to generate audit programs.
Copyright © 2014 Pearson Education
Specify the characteristics that determine the persuasiveness of evidence.
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Two determinants:
Appropriateness Sufficiency
The persuasiveness of evidence can be evaluated only after considering the combination of appropriateness and sufficiency
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1. Independence of provider2. Effectiveness of client’s
internal controls3. Auditor’s direct knowledge4. Qualification of individuals
providing the information5. Degree of objectivity6. Timeliness
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Audit Evidence DecisionsAudit procedures and timing
Sample size and items to select
Qualities Affecting Persuasivenessof Evidence
Appropriateness Relevance Reliability Independence of provider Effectiveness of internal controls Auditor's direct knowledge Qualifications of provider Objectivity of evidence Timeliness When procedures are performed Portion of period being audited
Sufficiency Adequate sample size Selection of proper population items
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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.
Copyright © 2014 Pearson Education
Identify and apply the eight types of evidence used in auditing.
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Physical Examination
Audit
Evidence
Client Inquiries
ObservationConfirmation
Reperformance Inspection
RecalculationAnalytical procedures
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It is the inspection or count by theauditor of a tangible asset.
This type of evidence is most oftenassociated with inventory and cash.
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Auditing StandardsUnited States
International
RequirementsAuditor must confirm accounts receivableAuditors control the mailing and receipt of replies Electronic confirmations are permitted
Confirmations are not required
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It is the auditor’s examination of theclient’s documents and records.
Internaldocuments
Externaldocuments
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Understand the client’s industry and business Assess the entity’s ability to continue as a
going concern Indicate the presence of possible misstatements
in the financial statements Reduce detailed audit tests
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It is the obtaining of written or oral information from the client in response to questions from the auditor.
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Involves rechecking a sample of calculationsmade by the client.
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The auditor’s independent tests of clientaccounting procedures or controls thatwere originally done as part of the entity’s accounting and internal control system.
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Use one’s senses to assess client activities.
Tour plant to obtain a generalimpression of client’s facilities.
Observation is rarely sufficientby itself.
Often need to corroborate with another kind of evidence.
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Terms
ExamineScanReadComputeRecomputeFootTraceCompareCountObserveInquireVouch
Type of Evidence
InspectionAnalytical proceduresInspectionAnalytical proceduresRecalculationRecalculationInspection/ReperformanceInspectionPhysical examinationObservationInquiries of clientInspection
Copyright © 2014 Pearson Education
Understand the purposes of audit documentation.
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Audit documentation is the record of theaudit procedures performed, relevant audit evidence, and conclusions the auditor reached.
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Purposes of audit documentation
Ownership of audit files
Confidentiality of audit files
Requirements for Retention of audit Documentation
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The Sarbanes-Oxley Act requires auditors ofpublic companies to prepare and maintainaudit working papers for a period of notless than seven years.
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Prepare organized audit documentation.
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These files are intended to containdata of a historical or continuingnature pertinent to the current audit.
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Audit program
General information
Working trial balance
Adjusting and reclassification entries
Supporting schedules
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Analysis
Trial balance or list
Reconciliation of amounts
Tests of reasonableness
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Summary of procedures
Examination of supporting documents
Informational
Outside documentation
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Proper identification of each file
Files indexed and cross-referenced
Clear indication of work performed
Include sufficient information
State conclusions reached
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Audit evidence is increasingly in electronic form
Auditors must evaluate how electronic information
affects their ability to gather evidence
Auditors use computers to read and examine
evidence
Software programs are typically Windows-based
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Copyright
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.