Module 17 Audit Process: Evidence Flashcards
Once ROMM has been concluded on, the evidence that must be sought in relation to numbers is done through what?
Substantive testing, due to the inherent limitations in internal control, the auditor must always perform some substantive procedures.
List the balance assertions
- Existence (E)
- Completeness (C)
- Accuracy, valuation and allocation (AVA)
- Classification(CI)
- Rights and obligation (R&O)
- Presentation (P)
List the transaction assertions
- Accuracy (A)
- Cut-off (CO)
- Occurrence (O)
- Completeness
- Classification (CI)
- Presentation (P)
Why use assertions?
A clearer definition of specific audit objectives - letting auditor focus on key areas
A clearer demonstration of work done - auditor can demonstrate audit has been done to auditing standards and relevant company law
Audit evidence must be sufficient and appropriate, what do they mean?
Sufficiency - a measure of the quantity of the evidence
Appropriateness - a measure of the quality of evidence (relevance and reliability)
Appropriate evidence is measured by reliability and relevance - True or false
True
Reliability of evidence is affected by the nature (natural/created evidence/rational argument/testimonial evidence) and source (Auditor/Third Party/Client generated)
What is the meaning of sufficient evidence?
It is the balance of finding the right amount of evidence required and the cost effectiveness of obtaining the evidence.
Higher ROMM = higher level of evidence
How is sufficiency determined?
The level of materiality
Assessed ROMM of the figure being tested
The sources and quality of available evidence
What are the sampling methods auditors use?
- Random selection
- Monetary unit sampling
- Haphazard selection
what is sample extrapolation?
This is when the auditor projects sample error onto the population as a whole
What are the types of substantive testing approaches?
Substantive analytical procedures - testing the total population
Test of details - selecting specific items within the population for testing
What is the difference between tests of controls and substantive procedures?
Test of controls is testing something the client has already done during the year and provides evidence that the clients control procedures prevent/detect and correct missatements
Substantive procedures are the procedures that the auditor undertakes to detect possible misstatements that may exist in the financial statements (testing the numbers) at the year end
What does an audit work programme include?
- Client name
- Client year end date
- Title of work programme
- Description of the substantive procedures
- The assertions met
- Initials of the audit staff who completed the substantive procedure
- The date the substantive procedure was completed
- A work paper reference
What is substantive analytical procedure?
When analytical procedures are used to identify a material misstatement at the assertion level
What analytical techniques are commonly used as a substantive procedure?
Reasonableness test
Trend analysis
Large and unusual items review