Chapter 5: audit evidence

Question 1

assertions about classes of transactions and events and related disclosures for the period under audit

Answer 1

1. occurrence
   2.completeness
2. accuracy
   4.cutoff
   5.classification
   6.presentation

Question 2

assertions about account balances and related disclosures at the period end

Answer 2

7. existence
   8.rights and obligations
   9.completness
8. accuracy, valuation and allocation
9. classification
10. presentation

Question 3

audit program

Answer 3

a listing of details of the audit procedures to be used when testing controls, conducting detailed substantive audit procedures, and completing the audit

Question 4

audit evidence

Answer 4

information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based; it is information to which audit procedures have been applied and consists of information that corroborates or contradicts management assertions

Question 5

4 forms of information to be used as audit evidence

Answer 5

1. oral information
   2.visual information
   3.paper documents
   4.electronic information

Question 6

sufficient

Answer 6

refers to the quantity of audit evidence gathered

Question 7

appropriate

Answer 7

refers to the quality of evidence gathered

Question 8

sources of information

Answer 8

1. management and internally generated information
2. external information sources and other external parties- customers, vendors, lenders
   3.auditor

Question 9

Procedures for gathering audit evidence

Answer 9

1. Risk assessment procedures Methods used to gain an understanding of a client and its industry for the purpose of identifying risk of material misstatement.
2. Tests of controls Methods used to determine the operating effectiveness of the client’s controls in preventing, or detecting and correcting, material misstatements at the assertion level.
3. Substantive procedures. Methods designed to detect material misstatements at the assertion level. Two categories of substantive procedures are tests of details (of account balances, transactions, and disclosures) and substantive analytical procedures.

Question 10

Substantive procedures.

Answer 10

Methods designed to detect material misstatements at the assertion level. Two categories of substantive procedures are tests of details (of account balances, transactions, and disclosures) and substantive analytical procedures.

Question 11

Vouching

Answer 11

a type of inspection in which auditors select transactions from a journal or ledger and work backward to examine the underlying source documents; vouching provides evidence for the occurrence or existence assertion.

Question 12

Tracing

Answer 12

a type of inspection in which auditors select source documents and work forward to follow the transaction through to recording in the journal and ledger; tracing provides evidence for the completeness assertion

Question 13

inspection of documents and assets

Answer 13

1.vouching
2.tracing

Question 14

observation

Answer 14

an evidence-gathering procedure that involves watching a process or procedure being carried out by client personnel or another party

Question 15

inquiry

Answer 15

an evidence-gathering procedure that involves asking questions to gain an understanding of various matters throughout the audit

Question 16

external confirmation

Answer 16

a procedure in which the auditor corresponds directly with a third party, either in paper or electronic form, and the third party responds directly to the auditor on the matter(s) included in the confirmation

Question 17

bank confirmation

Answer 17

correspondence sent directly by the auditors to their client’s bank requesting information such as cash held in the bank and details of any loans with the bank and interest rates charged
* Existence. Cash listed on the client’s balance sheet actually exists.
* Accuracy, valuation and allocation. Cash balance is recorded at the proper amount.
* Rights and obligations. Cash is in the client’s name and rightfully owned by the client.

Question 18

receivable confirmation

Answer 18

correspondence sent directly by the auditors to their client’s customers requesting information about amounts owed to the client by the customer
* Existence
* Rights and obligations

Question 19

Positive confirmations

Answer 19

ask recipients to reply in all circumstances. If a response cannot be obtained, auditors must perform follow-up procedures.

Question 20

Negative confirmation

Answer 20

ask recipients to reply only if they disagree with the information provided. If a recipient does not respond to a negative confirmation, it is assumed they agree with the information provided.

Question 21

recalculation

Answer 21

an audit procedure that involves checking the mathematical accuracy of documents or records

Question 22

reperformance

Answer 22

an audit procedure that involves the independent execution of procedures or controls that were originally performed by client personnel

Question 23

analytical procedures

Answer 23

evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data

Question 24

scanning

Answer 24

a type of analytical procedure in which auditors use their professional judgment to review accounting data to identify unusual or significant items to examine further

Question 25

auditor specialist

Answer 25

an individual or organization with expertise in a field other than accounting or auditing whose work in that field is used by the auditors to assist in obtaining sufficient appropriate evidence

Question 26

internal auditors

Answer 26

employees of the client who perform assurance and consulting activities designed to evaluate and improve the effectiveness of the entity’s governance, risk management, and internal control processes

Question 27

audit documentation

Answer 27

the record of audit procedures performed, audit evidence obtained, and conclusions reached (also called working papers or workpapers)

Question 28

permanent file

Answer 28

contains client information that is relevant for more than one audit

Question 29

current file

Answer 29

contains client information that is relevant for the duration of one audit