Topic 5 audit evidence and auditing procedure
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This document discusses audit evidence and auditing procedures. It defines audit evidence as any information used by the auditor to determine if information being audited is stated according to established criteria. It lists six types of audit evidence: physical examination, confirmation, documentation, analytical procedures, inquiries, and re-performance. It also discusses factors that determine the persuasiveness of audit evidence, including appropriateness, sufficiency, and reliability.
Topic 5 audit evidence and auditing procedure
- 1. TOPIC 5: AUDIT EVIDENCE & AUDITING PROCEDURE References: Chapter 7 AUD390 2011
- 2. AUD390 AUDITING DIA AUDIT EVIDENCE & AUDITING PROCEDURE NATURE OF EVIDENCE TYPES OF AUDIT EVIDENCE PERSUASIVENESS OF EVIDENCE
- 3. Definition: any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria AUD390 AUDITING DIA
- 5. AUD390 AUDITING DIA AUDIT PROCEDURES Detailed instruction for the collection of a type of audit evidence through out audit process SAMPLE SIZE The decision of how many items to test SAMPLE SIZE The decision of how many items to test ITEMS TO SELECT The decision of which items in the population to test ITEMS TO SELECT The decision of which items in the population to test TIMING The period of the items to be tested TIMING The period of the items to be tested
- 6. ISA 500 Audit Evidence requires the auditor to accumulate sufficient appropriate evidence to support the opinion issued Determinants of the persuasiveness of evidence are Appropriateness or Reliability Sufficiency AUD390 AUDITING DIA
- 7. Definition: the degree to which evidence can be considered reliable or worthy of trust E.g. if an auditor counted the inventory, the evidence will be more appropriate if the auditor counted the inventory rather than the management give the figure 7 characteristics of appropriate or reliable evidence:- AUD390 AUDITING DIA 1. Relevance 2. Independence of provider 7. Timeliness 3. Effectiveness of client’s internal control 5. Qualifications of individuals providing the information 6. Degree of objectivity 4. Auditor’s direct knowledge
- 8. Definition: Measured primarily by the sample size the auditor select 2 factors determine the appropriate sample size:- Auditor’s expectation of misstatements Effectiveness of the client’s internal controls AUD390 AUDITING DIA
- 9. 1. Physical examination 2. Confirmation 3. Documentation 4. Analytical procedures 5. Inquiries of the client 6. Re-performance 7. observation AUD390 AUDITING DIA
- 10. The inspection or count by the auditor of a tangible asset Objective: Verifying that an asset actually exist (existence obj.) Ascertaining both the quantity & the description of the asset Evaluating an asset’s condition or quality AUD390 AUDITING DIA
- 11. AUD390 AUDITING DIA The receipt of a written or oral response from an independent third party verifying the accuracy of information that was requested by the auditor ISA 501…identifies 2 common types of confirmation requests i.e. positive confirmation & negative confirmation
- 12. AUD390 AUDITING DIA Positive confirmation – Ask the recipient to respond in all circumstances Negative confirmation – The recipient is asked to respond only when the information is incorrect IMPORTANT: Process of getting confirmation must be controlled by the auditor from the time they are prepared until they are returned; to maintain the reliability of the evidence
- 13. AUD390 AUDITING DIA The auditor’s examination of the client’s documents & records to substantiate the information that is or should be included in the financial statements Advantage: – Widely used – Readily available at a relatively low cost Classified into 2; Internal & External
- 14. AUD390 AUDITING DIA Internal Documents – Docs. that has been prepared & used within the client’s organisation & retained without ever going to an outside party – E.g. duplicate sales invoice, employees’ time reports & inventory receiving report
- 15. AUD390 AUDITING DIA External Documents – Docs. that has been in the hands of someone outside the client’s organisation; who is party to the transaction, but which is either currently in the hands of the client or readily accessible – In some cases, docs originate outside the client’s organisation & ended up in the hand of client
- 16. AUD390 AUDITING DIA – E.g. vendor’s invoices, cancelled note payable, insurance policies, cancelled cheque (returned by supplier/vendor) Vouching … the process in which the auditor use documentation to support recorded transactions or amounts – E.g. to vouch recorded acquisition transactions, the auditor trace transaction from acquisition journal to support vendor’s invoices & receiving reports
- 17. AUD390 AUDITING DIA ISA 520 – Analytical procedures use comparisons & relationships to assess whether account balances or other data appear reasonable It is being used for different purposes on an audit – Understand the client’s industry & 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
- 18. AUD390 AUDITING DIA Obtaining of written or oral information from the client in response to questions from the auditor Disadvantage: – It is not from an independent source & may be biased in the client’s favor When the auditor choose to obtain evidence through inquiries, it is normally necessary to obtain further corroborating evidence through other method
- 19. AUD390 AUDITING DIA Involves rechecking a sample of the computations and transfers of information made by the client during the period under audit Also known as testing the client’s arithmetical accuracy
- 20. AUD390 AUDITING DIA Definition: The use of the sense to assess certain activities Opportunities to exercise sight, hearing, touch & smell to evaluate a wide range of items
- 21. 1. List 3 sources of audit evidence with an example of each of the source. 2. List the 4 determinants for the persuasiveness of the audit evidence and give a brief explanation for each. 3. Classify the following evidences as either internal or external documents i. Purchase requisition ii. Original copy of Delivery Note iii. Cheque butt iv. Payment vouchers 4. What is a standardized audit program? 5. Explain 3 advantages and disadvantages of standardized audit program? AUD390 AUDITING DIA