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Flashcards in Audit Evidence 2 Deck (21):

The auditor should also review the related repair and maintenance expense accounts to test for COMPLETENESS of asset additions.

The auditor is looking for items recorded as repair that should have been CAPITALIZED.


An auditor's observation procedures with respect to well-kept perpetual inventories that are periodically checked by physical counts

may be performed BEFORE, DURING, or AFTER the end of the audit period.


In conjunction with the inventory observation, the auditor should test the physical inventory report by TRACING TEST ACCOUNTS to the report, thereby VERIFYING its completeness. (从实物到报告或标签)

The auditor should also TRACE from a sample of prenumbered inventory tags to the physical inventory report sheets to test the completeness of the invnetory(预先标号的库存标签到库存报告)


For completeness assertion

OR tracing from supporting(source) evidence to the accounting record(journal entry)

Or compare a sample of shipping documents to related sales invoices.

For existence assertion
Or tracing from the accounting records(J/E) to the supporting(source) evidence.


1. The purchase department prepare the purchase order
2. The Receiving department prepare the receiving report

3. The payable department match the purchase order, receiving report and vendor invoice
4. The treasurer actually make the payment


1. Analyzing inventory turnover related to valuation assertion
2. Examining consignment (托管)agreement related to rights and obligations assertion

3. Obtaining quotations for the current market value of inventory related to valuation assertion
4. Confirming inventory pledged(抵押) under loan agreements related to classification and understandability assertion.


Existence is verified by vouching from the records and statement BACK to the supporting documents.

Therefore, to test the existence assertion of PPE, and auditor most likely would obtain a listing of all current-year additions(records), vouching significant additions to original invoices(source), and determining that they have been placed in service(source).


Perform a search for unrecorded liability(payable)

The auditor should select cash disbursement made subsequent to year-end and examine the supporting document(e.g receiving reports, vendor invocies). the auditor looks for items that should have been recorded at the balance sheet date, but were not.


The following may be indicative of a related party transaction

1. Compensating balance arrangement(which may be maintained by or for related parties)
2. loan guarantees.
3.Unusual, nonrecurring transactions near year-end
4. Transactions based on terms that differ significantly from market term
5. Nonmonetary exchanges.


In evaluating the reasonableness of an estimate, the auditor must FIRST obtain an understanding of how management developed its estimate.

then, the auditor would perform one or a combination of the following procedure.
1. Review and test the procedures used by management to develop the estimate.
2. Develop an independent estimate of the item for comparative purpose.
3. Review subsequent events and transactions (occurring prior to the date of the auditor's report) that corroborate the value of the estimate.


The objective of analytical procedures used in the overall stage of the audit is to assist the auditor in assessing conclusion reached and in the evaluation of the overall F.S presentation.

Analytical procedures applied in the overall review stage are used to consider the adequacy of evidence gathered in response to unusual and unexpected balances identified in planning the audit, and to identify unusual and unexpected balances or relationships that were not previously identified.


Assertion of Understandability and classification

The auditor should examine the due dates of notes and bonds to determine whether the debt should be classified as short-term and long-term


Completeness assertion
In conjunction with the inventory observation, the auditor should test the physical inventory report by tracing test counts to the report, thereby verifying its (report's) completeness

The auditor should also trace from a sample of prenumbered inventory tags to the physical inventory report sheets to test the completeness of the inventory report sheets.


Valuation, Allocation and Accuracy assertion

1. Test the mathematical accuracy of the inventory report
2. Examine the obsolete and damaged asset
3. test inventory price
4. review the vendor invoice


Accounting estimate are NOT used to measure FUTURE events.

Estimates are used because
1. Data about past events cannot be accumulated in a timely, cost-effective manner
2. measurement of some accounts is dependent upon the outcome of future events.
It is the management 的责任 to make reasonable estimates and include them in the F.S


Identifying contingencies
1. the auditor should ask management about contingent liab

2. review the minutes of meeting of stockholder, board of director etc
3. correspondence and invoices from lawyer
4. correspondence from tax authorities
5. bank confirmation for hidden bank loan.
6.purchase commitment
7.long-term lease
8.client representation letter
9. send an inquiry letter to the client's attorney.


Negative assurance about A.R

1. many small balance
2. the confirmation by the recipient is likely
3. the assess level of control risk related to A/R is low.


Positive assurance

1. large balance
2. expect error & dispute
3. weak IC


A service organization's services are part of an entity's information system if they affect any of the following:
1. how the entity's transactions are initiated
2. the accounting records, supporting info, and specific accounts in the F.S involved in the processing and reporting of the entity's transaction
3. the accounting processing involve from the initiation of transactions to their inclusion in the F.S, including electronic means used to transmit, process, maintain, and access info
4. the financial reporting process used to prepare the entity's F.S, including significant accounting estimate and disclosure

A service organization's services are part of an entity's info system if they affect the initiation, processing, execution or reporting of the entity's transaction.
Service performed by another organization are NOT considered to be part of the client's info system if the services provided are limited to executing transactions that are specifically authorized by the client.


To obtain audit evidence about control risk, the auditor select tests from

1. inquiry
2. observation
4. repeformance


During the planning stage of the audit ,the auditor obtain an understanding of the internal control system by considering

1. the type of misstatement
2. the risk of misstatement
3.factors that influence the design of tests of control and substantive test
4.the assessment of inherent risk
5.judgement about materiality
6. the complexity and sophistication of the entity;s operation and system
7. the use of manual vs. computerized control procedures.