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Flashcards in Audit Evidence Deck (21):

Evidence must relate to the F.S assertion(s) under consideration.
PCAOB standards state that the relevance of audit evidence depends on

1. the design of the audit procedure, in particular whether it is designed to test the assertion directly and whether it is designed to test for understatement or overstatement
2. the timing of the audit procedure.
The auditor's risk assessment affects the nature, extent and timing of audit procedures, but NOT determine the relevance of audit evidence.


The analytical procedure include

comparison or conversion of an entity's financial info/date. as well as comparing relationships among date, such as inventory balances to recent sales activities.


When designing and performing analytical procedures as substantive procedures, the auditor should do the following

1. Determine the analytical procedures that are SUITABLE for testing the assertions
2. Evaluate the reliability of the data from which the auditor's expectation is to be developed.
3. Develop an expectation of a balance or ratio by using relationship that are expected to exist and evaluate whether the expectation is sufficiently precise to identify material misstatement
4.Perform the analytical procedures and compare the results of the analytical procedures with the expectation
5. Investigate any significant differences


Analytical procedures are required during

an auditor's planning and final review.


What is a bank cut-off statement?

What evidence is provided by a bank cut-off statement?

A bank cut-off statement is a partial-period bank statement, including copies or originals of the related cancelled checks, duplicate deposit slips, and any other documents normally included in bank statements, which is mailed by the bank directly to the CPA firm's office. It requests that evidence of all checks and deposits and other banking transactions that have occurred in the first seven to ten days after the end of the client's year-end be forwarded directly to the CPA.


The standard bank confirmation should be sent to all banks with whom the client has done business during the year, regardless of whether there is a year-end balance to confirm.

This is done because the bank confirmation, in addition to verifying year-end balance, also provide evidence about actual loans and contingent liabilities, discount notes, pledged collateral, and guarantee or security agreements.


The accounting department has THREE functions
1. to record the payable
2. to approve the invoice for payment
3. to record the payment after it is paid by the treasurer

The accounting department APPROVE the invoice for payment(by matching the invoice, purchase order, receiving report), while the treasurer prepare, signs and mails the checks and cancels all supporting documents after payment.
Paid vouchers are returned to the accounting department for posting of the payment and filling of the documents.

1. To record the payment. (The receiving report is compared with the purchase order and the vendor's invoice as to prevent payment of charges for goods in excess of those ordered or received. The accounting department records to goods as received in inventory, and records a payable.
2. To approve the invoice for payment.
When the invoice arrives, the accounting department approves it by MATCHING the invoice, purchase order, receiving report, and the requisition.
3. Cash disbursement
The functions of approving the payment and signing the checks should be segregated.


Management assertions are CLAIMS made by members of management regarding certain aspects of a business. The concept is primarily used in regard to the audit of a company's F.S, where the auditor rely upon a variety assertions regarding the business.

Management assertions fall into 3 classification.
1. Transaction-level assertions, which mostly in regards to the income statement.
a. Accuracy. The full amount of all transactions were recorded, without error.
b. Classification. All transactions have been recorded within the correct accounts in the general ledger.
c. Completeness. All business events to which the company is subjected were recorded.
d. Cutoff. All transactions were recorded within the correct reporting period.
e. Occurrence. Recorded business transactions actually took place.


Management assertions fall into 3 classification.

2. Account balance assertion,

2. Account balance assertion, which related to the ENDING balances in accounts, and primarily relate to the balance sheet.
a. Completeness. All reported asset, liability and equity balances have been fully reported.
b. Existence. All account balances exist for assets, liabilities, and equities.
c. Rights and obligations. The entity has the rights to the assets it owns and its obligated under its reported liabilities.
d. Valuation. All assets, liabilities, and equity balances have been recorded at their proper valuations.


Management assertions fall into 3 classification.

3. Presentation and disclosure assertions

a. Accuracy
b. Completeness
c. Occurrence
d. Rights and obligations
e. Understandability. The info included in F.S has been appropriately presented and clearly understandable.


The valuation and allocation assertion

addresses whether assets, liabilities, and equity interests included in the F.S are at appropriate amount and any resulting valuation or allocation adjustments are appropriate recorded.


in ordre to obtain Knowledge of the client's business

1. tour client facilities
2. Review the financial history of the client
3. Obtain an understanding of client accounting
4.inquiry of client personnel


In planning an audit of a new client, an auditor most likely would consider the methods used to process accounting info because such method

influence the design of internal control.
The auditor develops specific audit objectives based on F.S assertions. The method used to process accounting info would NOT be relevant to the development of objectives.


An unmodified opinion states that the F.S are presented fairly, in all material respects.

Accordingly, if the auditor believes that total misstatement ( including factual, judgmental, and projected misstatement) is immaterial, an unmodified opinion is appropriate.


During planning, the auditor is required to

1. obtain knowledge of the client's business and industry.
2. Develop audit strategy
3. Develop the audit plan
4. Perform risk assessment procedures to obtain an understanding of the entity and its environment, including its internal control, sufficient to assess the risks of material misstatement and design further audit procedure.


The nature,timing and extent of supervision relies on

1. the nature of the company
2. the nature of the work assigned
3. the qualification of the assistant
4. the assessed risk of material misstatement


When planning the audit, the auditor should consider the extent of involvement of the client's internal auditor in the performance of the audit.

Although they can be involved with test of controls and of details (i.e substantive tests), their involvement should generally be limited.


Professional skepticism is an attitude

that includes a questioning mind-set and a critical assessment of audit evidence.


The auditor should obtain an understanding of the entity and its environment sufficient to

1. assess the risk of material misstatement
2. to design and perform further audit procedures.


The objective of analytical procedures used during planning is to

1. enhance the auditor's understanding of the entity, transaction, and events that have occurred since the last audit date.
2. identify unusual transactions and events.


During the planning stage, the auditor should

1. inquiry, which generally made of management and others within the entity
2. analytical procedures. Which include compare recorded info with budged and anticipated expectation.