Auditing - Ch. 04 Audit Evidence And Audit Documentation

Front 1

WHAT IS THE OVERVIEW OF THE RELATIONSHIPS AMONG FINANCIAL STMTS, MNGMT ASSERTIONS, AUDIT PROCEDURES AND THE AUDIT REPORT?

Back 1

- Management is responsible for fair presentation of the financial statements.
- Assertions are given by management as to the disclosed information in the financial statements and disclosures.
- Auditors gather evidence by conducting audit procedures to test management assertions.
- Auditor reaches a conclusion based on the evidence as to whether financial statements are fairly presented.
- Audit Report is produced.

Hint 1

Ch. 4

Front 2

WHAT ARE ASSERTIONS?

Back 2

Expressed or Implied representations by management regarding the recognition, measurement, presentation, and disclosure of information in the financial statements and related disclosures.

Hint 2

Ch. 4

Front 3

WHAT ARE THE 6 MANAGEMENT ASSERTIONS ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT?

Back 3

A1. Authorization
A2. Accuracy
A3. Completeness
A4. Classification
A5. Cutoff
A6. Occurrence

Hint 3

Ch. 4 - management assertions AACCCO

Front 4

WHAT IS THE ASSERTION ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT WHICH SHOWS ALL TRANSACTIONS AND EVENTS HAVE BEEN PROPERLY AUTHORIZED?

Back 4

A1 - Authorization

Hint 4

Ch. 4 - A1

Front 5

WHAT IS WHAT IS THE ASSERTION ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT WHICH SHOWS ALL TRANSACTIONS AND EVENTS HAVE BEEN PROPERLY AUTHORIZED?

Back 5

A2 - Accuracy

Hint 5

Ch. 4 - A2

Front 6

WHAT IS THE ASSERTION ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT WHICH SHOWS TRANSACTIONS AND EVENTS THAT SHOULD HAVE BEEN RECORDED HAVE INDEED BEEN RECORDED?

Back 6

A3 - Completeness

Hint 6

Ch. 4 - A3

Front 7

WHAT IS THE ASSERTION ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT WHICH SHOWS ALL TRANSACTIONS AND EVENTS HAVE BEEN RECORDED IN THE PROPER ACCOUNTS?

Back 7

A4 - Classification

Hint 7

Ch. 4 - A4

Front 8

WHAT IS THE ASSERTION ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT WHICH SHOWS THAT TRANSACTIONS AND EVENTS HAVE BEEN RECORDED IN THE CORRECT ACCOUNTING PERIOD?

Back 8

A5 - Cutoff

Hint 8

Ch. 4 - A5

Front 9

WHAT IS THE ASSERTION ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT WHICH SHOWS TRANSACTIONS AND EVENTS THAT HAVE BEEN RECORDED HAVE OCCURRED AND PERTAIN TO THE ENTITY (SOMETIMES CALLED VALIDITY)?

Back 9

A6 - Occurrence

Hint 9

Ch. 4 - A6

Front 10

WHAT ARE THE MANAGEMENT ASSERTIONS ABOUT ACCOUNT BALANCES AT THE PERIOD END?

Back 10

B1. Completeness
B2. Existence
B3. Rights and Obligations
B4. Valuation and Allocation

Hint 10

Ch. 4 - management assertions - CERV

Front 11

WHAT IS THE MANAGEMENT ASSERTION ABOUT ACCOUNT BALANCES AT THE PERIOD END THAT SHOWS THAT ALL ASSETS, LIABILITIES, AND EQUITY INTERESTS THAT SHOULD HAVE BEEN RECORDED HAVE BEEN RECORDED?

Back 11

B1 - Completeness

Hint 11

Ch. 4 - B1

Front 12

WHAT IS THE MANAGEMENT ASSERTION ABOUT ACCOUNT BALANCES AT THE PERIOD END THAT SHOWS THAT ASSETS, LIABILITIES, AND EQUITY INTERESTS EXIST?

Back 12

B2 - Existence

Hint 12

Ch. 4 - B2

Front 13

WHAT IS THE MANAGEMENT ASSERTION ABOUT ACCOUNT BALANCES AT THE PERIOD END THAT SHOWS THAT THE ENTITY HOLDS OR CONTROLS THE RIGHTS TO ASSETS, AND LIABILITIES ARE THE OBLIGATIONS OF THE ENTITY?

Back 13

B3 - Rights and Obligations

Hint 13

Ch. 4 - B3

Front 14

WHAT IS THE MANAGEMENT ASSERTION ABOUT ACCOUNT BALANCES AT THE PERIOD END THAT SHOWS THAT ALL ASSETS, LIABILITIES, AND EQUITY INTERESTS ARE INCLUDED IN THE FINANCIAL STATEMENTS AT APPROPRIATE AMOUNTS, AND ANY RESULTING VALUATION OR ALLOCATION ADJUSTMENTS ARE APPROPRIATELY RECORDED?

Back 14

B4 - Valuation and Allocation

Hint 14

Ch. 4 - B4

Front 15

WHAT ARE THE 4 MANAGEMENT ASSERTIONS ABOUT PRESENTATION AND DISCLOSURE?

Back 15

C1. Completeness
C2. Occurrence and Rights and Obligations
C3. Classification and Understandability
C4. Accuracy and Valuation

Hint 15

Ch. 4 - management assertions COCA

Front 16

WHAT IS THE MANAGEMENT ASSERTION ABOUT PRESENTATION AND DISCLOSURE THAT SHOWS THAT ALL DISCLOSURES THAT SHOULD HAVE BEEN INCLUDED IN THE FINANCIAL STATEMENTS HAVE BEEN INCLUDED?

Back 16

C1 - Completeness

Hint 16

Ch. 4 - C1

Front 17

WHAT IS THE MANAGEMENT ASSERTION ABOUT PRESENTATION AND DISCLOSURE THAT SHOWS THAT DISCLOSED EVENTS, TRANSACTIONS, AND OTHER MATTERS HAVE OCCURRED AND PERTAIN TO THE ENTITY?

Back 17

C2 - Occurrence and Rights and Obligations

Hint 17

Ch. 4 - C2

Front 18

WHAT IS THE MANAGEMENT ASSERTION ABOUT PRESENTATION AND DISCLOSURE THAT SHOWS THAT FINANCIAL INFORMATION IS APPROPRIATELY PRESENTED AND DESCRIBED, AND DISCLOSURES ARE CLEARLY EXPRESSED?

Back 18

C3 - Classification and Understandability

Hint 18

Ch. 4 - C3

Front 19

WHAT IS THE MANAGEMENT ASSERTION ABOUT PRESENTATION AND DISCLOSURE THAT SHOWS THAT FINANCIAL AND OTHER INFORMATION ARE DISCLOSED FAIRLY AND AT APPROPRIATE AMOUNTS?

Back 19

C4 - Accuracy and Valuation

Hint 19

Ch. 4 - C4

Front 20

DEFINE AUDIT EVIDENCE and why it is collected.

Back 20

All the information, from whatever source, used by the auditor in arriving at the conclusions on which the audit opinion is based.
Auditors gather evidence by conducting Audit Procedures to TEST MANAGEMENT ASSERTIONS.

Hint 20

Ch. 4

Front 21

IN WHAT FORMS CAN AUDIT EVIDENCE TAKE?

Back 21

- Accounting records (journal entries, subsidiary ledgers, etc)
- Minutes of meetings
- Confirmations from third parties
- Analysts' reports
- Information obtained via inquiry, observation, inspection

Hint 21

Ch. 4

Front 22

What types of EVIDENCE must be collected?

Back 22

Collect SUFFICIENT and APPROPRIATE evidence.

Hint 22

Ch. 4

Front 23

WHAT IS SUFFICIENCY OF AUDIT EVIDENCE?

Back 23

The measure of the quantity of audit evidence.
-- GREATER RISK requires HIGHER QUANTITY OF audit evidence
-- HIGHER QUALITY audit evidence RESULTS in a LOWER QUANTITY of audit evidence

Hint 23

Ch. 4

Front 24

WHAT IS REQUIRED IF YOU HAVE A GREATER RISK (Sufficiency) OF MISTATEMENT?

Back 24

Higher QUANTITY of audit evidence

Hint 24

Ch. 4

Front 25

WHAT IS REQUIRED IF YOU HAVE A HIGHER QUALITY (Sufficiency) OF AUDIT EVIDENCE?

Back 25

A lower QUANTITY of audit evidence.

Hint 25

Ch. 4

Front 26

WHEN IS EVIDENCE CONSIDERED APPROPRIATE?

Back 26

When the evidence provides information that is both RELEVANT and RELIABLE.

Hint 26

Ch. 4 - R & R

Front 27

DEFINE EVIDENCE RELEVANCE.

Back 27

How the evidence is related to the assertion or to the objective of the control being tested. (Relates to whatever you are testing)

Hint 27

Ch. 4

Front 28

DEFINE EVIDENCE RELIABILITY.

Back 28

If a particular type of evidence can be relied upon to signal the true state of an assertion.
1. Auditors' direct PERSONAL KNOWLEDGE - see it with your own eyes (observe PPE, inventories)
2. EXTERNAL documentary EVIDENCE - originates from outside firm (A/R confirmations, bank confirmations)
3. EXTERNAL / INTERNAL DOCUMENTS - info comes to you from outside firm - within the client (vendor invoices for purchases)
4. INTERNAL documentary evidence - produced inside client (client sales invoices)
5. VERBAL and WRITTEN representations (management representations - memos)
1 = More reliable --> 5 = Less reliable

Hint 28

Ch. 4

Front 29

WHAT IS REQUIRED OF AN AUDITOR IN EVALUATING AUDIT EVIDENCE? (2)

Back 29

1. Understanding of the TYPES of EVIDENCE available.
2. Understanding of the relative RELIABILITY or Diagnosticity of available evidence.

Hint 29

Ch. 4

Front 30

WHAT MUST AN AUDITOR BE CAPABLE OF DOING IN ASSESSING EVIDENCE?

Back 30

Knowing when there is a SUFFICIENT amount of APPROPRIATE evidence has been obtained in order to determine the fairness of management's assertions.

Hint 30

Ch. 4

Front 31

HOW SHOULD AN AUDITOR CONDUCT A SEARCH FOR INFORMATION?

Back 31

1. Be thorough in searching for evidence
2. Be unbiased in the evaluation of the evidence.

Hint 31

Ch. 4

Front 32

WHAT TYPES OF AUDIT EVIDENCE DOES AN AUDITOR EXAMINE?

Back 32

1. Inspection of records or documents
2. Inspection of tangible assets
3. Observation
4. Inquiry
5. Confirmation
6. Recalculation
7. Reperformance
8. Analytical procedures
9. Scanning

Hint 32

Ch. 4 - Audit evidence types

Front 33

WHAT IS AN AUDIT PROGRAM?

Back 33

A set of audit procedures prepared to test assertions for a component of the financial statements.
- Based, in part, on the OUTPUT of AUDIT RISK MODEL. The steps are signed off as the procedures are performed or reviewed.

Hint 33

Ch. 4 - Audit procedures

Front 34

WHAT IS AN AUDIT PROCEDURE?

Back 34

Specific acts performed by the auditor to gather evidence about whether specific assertions are being met. (i.e., Risk assessment procedures, Test of controls, Substantive procedures)

Hint 34

Ch. 4 - Audit procedures

Front 35

WHAT IS THE HIERARCHY OF EVIDENCE QUALITY, FROM HIGHEST TO LOWEST?

Back 35

1. Auditors' direct personal knowledge (Observe PPE, inventories)
2. External documentary evidence (A/R confirmations, bank confirmations)
3. External-Internal evidence
(vendor invoices for purchases)
4. Internal documentary evidence (client sales invoices)
5. Verbal and Written representations (management representations)

Hint 35

Ch. 4 (from ch. 2)

Front 36

EXPLAIN THE PROCEDURES FOR OBTAINING AUDIT EVIDENCE - INSPECTION OF RECORDS AND DOCUMENTS.

Back 36

- Examine internal or external records or documents that are in paper form, electronic form, or other media.
- Inspection makes up most of the evidence collected in most audit engagements
- The SOURCE MATTERS (hierarchy of evidence quality)

Hint 36

Ch. 4 - Audit evidence

Front 37

DESCRIBE VOUCHING and what direction of testing and which management assertion it tests.

Back 37

Selecting an item for testing from the accounting records (journals or ledgers) and then examining the underlying source document. (Look at supporting documents for an amount in a journal entry - Existence or Occurrence)

Hint 37

Ch. 4 - Audit evidence

Front 38

DESCRIBE TRACING, which direction of testing and which management assertion it tests.

Back 38

Selecting an item for testing from the population of source documents and then following it into the accounting records (journals or ledgers)
(Take a source document and trace back to summary accounting records - Completeness)

Hint 38

Ch. 4 - Audit evidence

Front 39

EXPLAIN THE PROCEDURES FOR OBTAINING AUDIT EVIDENCE - INSPECTION OF TANGIBLE ASSETS

Back 39

Physical examination of a tangible asset (e.g., inventory observation, physical examination of fixed assets)
- Assertions: Existence, Valuation

Hint 39

Ch. 4 - Audit evidence

Front 40

EXPLAIN THE PROCEDURES FOR OBTAINING AUDIT EVIDENCE - OBSERVATION

Back 40

The process of watching a process or procedure being performed by others
- Used mostly during control testing
- Limitations? the person behaves differently while the auditor is around.

Hint 40

Ch. 4 - Audit evidence