audit evidence Flashcards
(28 cards)
What is audit evidence?
All the information used by the auditor in arriving at the conclusions on which the audit opinion is based.
Includes information contained in the accounting records underlying the financial statements and other information.
What does ISA 500 state regarding audit evidence?
The auditor should obtain sufficient appropriate audit evidence to draw reasonable conclusions on which to base the audit opinion.
This consideration of audit evidence is a compulsory requirement.
What is the nature of audit evidence?
Audit evidence is likely to be persuasive rather than conclusive.
This is due to sampling, potential mistakes, document forgery, and the need for professional judgment.
Define appropriateness of audit evidence.
The measure of the quality of audit evidence, including its relevance and reliability.
According to ISA 500, it supports the conclusions on which the auditor’s opinion is based.
What is sufficiency of audit evidence?
The measure of the quantity of audit evidence needed, influenced by risk assessment and the quality of the evidence.
Large amounts of unreliable evidence may not be persuasive.
List the characteristics of appropriate evidence.
- Relevance
- Independence of the provider
- Effectiveness of client’s internal controls
- Auditor’s direct knowledge
- Qualification of individuals providing the information
- Degree of objectivity
- Timeliness
How can the reliability of audit evidence be increased?
- Obtained from independent sources outside the entity
- Obtained directly by the auditor
- In documentary form
- Provided by original documents
- For internally generated evidence, effective related controls are necessary.
What factors influence the judgment regarding the sufficiency of audit evidence?
- Assessment of risk of material misstatement (RoMM)
- Materiality of the item
- Nature of accounting and internal control systems
- Auditor’s knowledge and experience
- Findings of audit procedures
- Source and reliability of the information
True or False: Cost can justify omitting a necessary audit procedure.
False.
Cost should not justify omitting necessary procedures or gathering an inadequate sample size.
What is an audit program?
A set of detailed audit procedures and activities to be performed to collect evidence.
It includes decisions on audit procedures, sample sizes, item selection, and timing.
What are financial statement (FS) assertions?
Representations by management embodied in the financial statements, used by the auditor to consider potential misstatements.
Categories include assertions about transactions and events, account balances, and presentation and disclosure.
List the categories of FS assertions.
- Assertions about classes of transactions and events
- Assertions about account balances at the period end
- Assertions about presentation and disclosure
What does the occurrence assertion entail?
Transactions and events that have been recorded have occurred and pertain to the entity.
What does the completeness assertion include?
All transactions and events that should have been recorded have been recorded.
What is the existence assertion about account balances?
Assets, liabilities, and equity interests exist.
What does the rights and obligations assertion state?
The entity holds or controls the rights to assets and liabilities are the obligations of the entity.
What are the types of evidence gathering techniques?
- Physical examination
- Confirmation
- Documentation
- Analytical procedures
- Inquiries of the client
- Recalculation
- Reperformance
- Observation
What is physical examination in the context of audit evidence?
Inspection or count by the auditor of a tangible asset.
What is confirmation in audit evidence?
Receipt of a response from an independent third party verifying the accuracy of information requested by the auditor.
What are the types of confirmation?
- Positive confirmation
- Negative confirmation
When is negative confirmation issued?
When inherent and control risk is low, a large number of small balances is involved, and a substantial number of errors is not expected.
What is documentation in the context of audit evidence?
Inspection of the client’s internal or external documents and records.
Define analytical procedures.
Evaluations of financial information through analysis of comparisons and plausible relationships among financial and non-financial data.
What are inquiries of the client?
Obtaining written or oral information from the client in response to auditor questions.
