Evidence and Sampling Flashcards
What is audit evidence?
Information used by the auditor to give reasonable assurance in arriving at the conclusion on which the opinion is made.
Both control risk and detection risk are sources of audit evidence.
it includes both internal (accounting records) and external (confirmations from 3rd parties) information.
What does ISA 500 require?
That auditors need to obtain ‘sufficient and appropriate audit evidence to be able to draw reasonable conclusions which to base audit opinion on’
What is sufficient (quantity/enough) evidence depend on?
How risk the client is.
What you assess materiality on (if client is only breaking even , a small error is material)
Level of assurance given - higher the level, more evidence needed
What does appropriate (quality) evidence depend on?
The source (third parties are more reliable then any info produced by the client)
Format (original copy and written is more reliable then verbal)
Relevant (proves one or more of the financial statement assertions)
What are financial statement assertions?
They are representations by management, explicit or otherwise, that are embodied in the financial statements as used by the auditor to consider different types of potential misstatements that may occur.
Assertions - classes of transactions
What are the features of financial assertions?
Occurrence - transactions have occurred and pertain to the entity
completeness - all transactions have been recorded
Accuracy - amounts and other data recorded properly
cut-off - transactions have been recorded in correct period
What is substantive testing?
- Testing the numbers in the financial statements
- Includes analytical procedures and test of detail
- Alternatively you can look at the clients systems for :
recording purchases/sales
checking goods into the warehouse
ensuring security
What do auditing standards require?
They require the auditor to carry out some substantive procedures (test of details or analytical procedures) but placing reliance solely on internal controls is not an option.
What should audit working papers documentation include?
- conclusions drawn
- provide understanding of work undertaken
-provide evidence of compliance with relevant laws, regulations and professional standards - planning and performance of engagement
- supervisions and reviews
- evidence obtained which assurance provider relied upon
- quality control procedures carried out
What is the purpose of audit documentation?
to allow an experienced auditor with no previous connection, understand things such as work performed, evidence obtained, matters arising and conclusions reached.
What is the difference between a current and permanent audit file?
permanent audit file - matters of permanent or semi-permanent nature, pieces of information that will be important every year
current audit file - only what relates to that year
Safe custody and retention in audit?
automated working papers must be kept confidential.
Registered auditors should keep working papers for at least 6 years from the end of accounting period in which they relate to.
What is a computer assisted audit technique?
Clients data may be entered into auditors systems then they do a basic data analysis and substantive testing.
Data analytics in auditing?
Auditors try to identify patterns, trend and correlations
What is directional testing?
auditors aim is to identify whether the financial statements are free from misstatement.
a misstated balance could be overstated (too big) or understated (too small)
testing for these have different approaches
charities are likely to understate as they want to act poor to get more money
