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4-1
Chapter 4
Audit Evidence and
Audit
Documentation
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
4-2
Relationship of Audit
Evidence to the Audit Report
Management assertions
about components of
financial statements
Financial
statements
Audit
procedures
Audit
report
Provide evidence on the
fairness of the
financial statements
LO# 1
Auditor reaches
a conclusion based
on the evidence
4-3
Management Assertions
LO# 2
4-4
Audit Procedures
Specific acts
performed by the auditor
to gather evidence about
whether specific assertions
are being met.
Risk assessment
procedures
Test of
controls
Substantive
procedures
LO# 3
4-5
Audit Procedures
A set of audit procedures prepared to test
assertions for a component of the financial
statements is referred to as an audit program.
Management Assertions Examples of Audit Procedures
Existence Confirm receivables.
Rights and obligations Inquire if receivables have been sold or pledged.
Completeness Agree controlling account with total of subsidiary accounts.
Select shipping documents immediatley prior to year end and
ensure sales invoices were recorded.
Valuation or allocation Trace accounts from aged trial balance to subsidiary accounts.
Test the adequacy of the allowance account.
Presentation and disclosure Look for amounts due from related parties.
Evaluate receivables for footnote disclosure.
Audit Program for Accounts Receivable
LO# 3
4-6
The Concepts of Audit
Evidence
Nature of audit evidence
Sufficiency and appropriateness
of audit evidence
Evaluation of audit evidence
LO# 4
4-7
Audit Procedures for
Obtaining Audit Evidence
Inspection
of records and
documents
Recalculation Observation
Inquiry Scanning
Inspection
of tangible
assets
Confirmation Reperformance
Analytical
procedures
LO# 5
4-8
Reliability of Types
of Evidence
LO# 6
4-9
Audit Documentation
The auditor’s principal record of the
audit procedures performed, evidence
obtained, and conclusions reached.
Audit documentation (working papers) have two functions:
 To provide support for the audit report.
 To aid in the planning, performance, and supervision of
the audit.
LO# 7
4-10
Content of Audit
Documentation
Audit documentation should:
Demonstrate how the audit complied with auditing
and related professional practice standards.
Support the basis for audit conclusions concerning
each material financial statement assertion.
Demonstrate that the underlying accounting
records agreed with the financial statements.
LO# 8
4-11
Content of Audit
Documentation
Audit documentation should:
Include a written audit program detailing auditing
procedures necessary to accomplish audit objectives.
Enable a knowledgeable and experienced reviewer to:
Understand the nature, timing,
extent, and results of audit
procedures, evidence obtained,
and conclusions reached.
Determine who performed
and reviewed the work,
as well as the dates
of the work and reviews.
LO# 8
4-12
End of Chapter 4
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin

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Introduction to the audit evidence and audit documentation

  • 1. 4-1 Chapter 4 Audit Evidence and Audit Documentation Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
  • 2. 4-2 Relationship of Audit Evidence to the Audit Report Management assertions about components of financial statements Financial statements Audit procedures Audit report Provide evidence on the fairness of the financial statements LO# 1 Auditor reaches a conclusion based on the evidence
  • 4. 4-4 Audit Procedures Specific acts performed by the auditor to gather evidence about whether specific assertions are being met. Risk assessment procedures Test of controls Substantive procedures LO# 3
  • 5. 4-5 Audit Procedures A set of audit procedures prepared to test assertions for a component of the financial statements is referred to as an audit program. Management Assertions Examples of Audit Procedures Existence Confirm receivables. Rights and obligations Inquire if receivables have been sold or pledged. Completeness Agree controlling account with total of subsidiary accounts. Select shipping documents immediatley prior to year end and ensure sales invoices were recorded. Valuation or allocation Trace accounts from aged trial balance to subsidiary accounts. Test the adequacy of the allowance account. Presentation and disclosure Look for amounts due from related parties. Evaluate receivables for footnote disclosure. Audit Program for Accounts Receivable LO# 3
  • 6. 4-6 The Concepts of Audit Evidence Nature of audit evidence Sufficiency and appropriateness of audit evidence Evaluation of audit evidence LO# 4
  • 7. 4-7 Audit Procedures for Obtaining Audit Evidence Inspection of records and documents Recalculation Observation Inquiry Scanning Inspection of tangible assets Confirmation Reperformance Analytical procedures LO# 5
  • 9. 4-9 Audit Documentation The auditor’s principal record of the audit procedures performed, evidence obtained, and conclusions reached. Audit documentation (working papers) have two functions:  To provide support for the audit report.  To aid in the planning, performance, and supervision of the audit. LO# 7
  • 10. 4-10 Content of Audit Documentation Audit documentation should: Demonstrate how the audit complied with auditing and related professional practice standards. Support the basis for audit conclusions concerning each material financial statement assertion. Demonstrate that the underlying accounting records agreed with the financial statements. LO# 8
  • 11. 4-11 Content of Audit Documentation Audit documentation should: Include a written audit program detailing auditing procedures necessary to accomplish audit objectives. Enable a knowledgeable and experienced reviewer to: Understand the nature, timing, extent, and results of audit procedures, evidence obtained, and conclusions reached. Determine who performed and reviewed the work, as well as the dates of the work and reviews. LO# 8
  • 12. 4-12 End of Chapter 4 Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin