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Flashcards in Asssurance Deck (12):

Which ISA lays out audit evidence?

ISA 500


Why do we need to obtain evidence?

On order to provide a reasonable level of assurance, correspondingly detailed audit evidence needs to be obtained. In a lower level assurance engagement, less evidence will be required.


What is included in audit evidence? how much evidence is needed?

Audit evidence includes both the information contained within the accounting records underlying the financial statements and other information gathered such as confirmations from third parties?

In order to reach a position in which they can express a professional opinion, the auditors need evidence from various sources.


What types of tests are involved in gathering evidence? (define both)

Tests of controls: audit procedures designed ot evaluate the operating effectiveness of controls in preventing, or detecting and correcting material misstatements at the assertion level.

Substantive procedures: audit procedure designed to detect material misstatements at the assets level. Substantive procedures comprise: tests of detail, substantive analytical procedures.


How and when do auditors carry out tests of controls?

When auditors carry out tests of control, they are seeking to rely on the good operation of the control system that the company has in place to draw a conclusion that the financial statements give a true and fair view. The logic is as follows:
- the directors set up systems of internal controls to ensure they report correctly to the shareholders
- the auditors are required to conclude whether the financial statements give true and fair view
- The auditors evaluate the control system put in place to assess whether it is capable of producing financial statements which give a true and fair view
- The auditors test the control system to assess whether it has operated as it was intended to, therefore giving assurance that the financial statements give a true


How and when do auditors carry out substantive procedures?

When the auditors carry out substantive procedures, they are testing whether specific items within balances or transaction in the financial statements are stated correctly.

ISAs require that auditors must always carry out some substantive proecdures because eo the limitations in inernal control systems.


How is sufficiency and appropriateness mean for the type/method of obtaining audit evidence?

Sufficient appropriate audit evidence is needed for auditors to draw reasonable conclusions on which to base the auditors opinion.

Sufficiency is the measure of the quantity of audit evidence.
Appropriateness is the measure of the quality or relevance and reliability of the audit evidence.

Quantity of evidence is affected by the level of risk. Quantity is also effected by quality - the better the evidence, the less is needed.


How do you assess the quality of evidence? What problems do you have with entity provided evidence?

External evidence is more reliable.

Evidence obtained directly by auditors is more reliable than that obtained indirectly or by inference.

Evidence obtained from entitys record is more reliable when related control systems operate effectively.

Written evidence is more reliable that oral representations.

Original documents are more reliable.

Information directly from entity is not always strong, so you must take meausres to ensure it is accurate and complete.


Definition of financial statement assertions?

Financial statement assertions: Representation by management, explicit or otherwise, that are embodied in the financial statements, as used by the auditor to consider the different types of potential misstatements.


Which assertions relate to classes of transactions and evens for the period under audit?

Occurrence: transaction and events that have been recorded have occurred and pertain to the entity.

Completeness: all transactions and events that should have been recorded have been recorded.

Accuracy: amount and other data relating to recorded transactions and events have been recorded appropriately.

Cut-off: transactions and events have been recorded in the correct accounting period

Classification: transactions and events have been recorded in the proper accounts.



Which asserts relate to account balances at the period end?

Existence: asset, liabilities and equity interests exist

Rights and obligations: the entity holds or controls the rights to assets, and the liabilities are the obligations of the entity.

Completeness: all assets, liabilities and equity interests that should have been recorded have been recorded.

Valuation and allocation: assets, liabilities and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.



Which assertions relate to presentation and disclosure?

Occurrence and rights and obligations: disclosed events, transactions and other matters have occurred and pertain to the entity.

Completeness: all disclosures that should have been included in the financial statememnts have been included.

Classification and understandability: financial information is appropriately presented and described, and disclosures are clearly expressed.

Accuracy and valuation: financial and other information are disclosed fairly and at appropriate amounts.