Chapter 7 - Evidence

Question 1

Auditors must obtain sufficient and appropriate audit evidence to be able to

Answer 1

draw reasonable conclusions on which to base the audit opinion. Auditor-generated evidence is more reliable than client-generated evidence.

Question 2

Asserttions relating to the SOPL and SOFP

Answer 2

SOPL (COCAP)
Occurance
Competeness
Accuracy
Cut-off
Classification
Presnetation

SOFP (CERVCAP)
Existence
Rights and obligations
Completeness
Accuracy, Valuation and Allocation
Classification
Presnetation

Question 3

Tests of control

Answer 3

Designed to evaluate the operating effectiveness of controls in preventing or detecting and correcting material misstatements
Does not test the balance which will go into the FS.
A TOC provides evidence of whether a control procedure has operated effectively.
It is not advised to carry out a 100% TOC approach

Question 4

Substantive procedures

Answer 4

Designed to detect material misstatement at the assertion level
Procedures: (AEIOU)
Analytical procedures - investigating any variances between expected and actual FS figures
Enquire
Inspect
Reperformance
Recalculate

Question 5

Test of Detail

Answer 5

Verify individual transactions and balances

Question 6

TOC - to be able to rely on controls, the audit will need to:

Answer 6

• ascertain how the system operates
• Document the system in audit working papers
• Test the operation of the system
• Assess the design and operating effectiveness of the control system
• determine the impact on the audit approach for specific classes of transactions, account balances and disclosures

Question 7

The auditor is required to carry out the following substantive procedures

Answer 7

• Agreeing the FS to the underlying accounting records
• Examination of material journals
• Examination of other adjustments made in preparing the FS

Question 8

Methods for when an auditor selects items for testing:

Answer 8

• Select all items to test
  Used when the population is relatively small or the auditor requires a high level of assurance
• Select specific items for testing
  Such as setting brackets for the selection or selecting based on categorisations of the items
• Sampling
  All sampling units have a chance of selection to gain a representative sample. (The sample has the same characteristics as those in the population)

Question 8

The auditor should consider the following before relying on the work of management’s expert:

Answer 8

• Evaulate the competence, capabilities and objectivity of that expert
• assess the availability of alternative sources of audit evidence
• obtain an understanding of the work carried out by the expert
• evaluate the appropriateness of that expert’s work as audit evidence for the relevant assertions

Question 9

Types of sampling

Answer 9

Statistical sampling - random selection of samples. Probability theory to evaluate sample results.
Non-statistical sampling - Any approach that does not have both of the characteristics of statistical sampling mentioned above.

Question 10

Deviations

Answer 10

Any issues identified during a test of controls are called deviations. The auditor will:
- determine the tolerable deviation rate
- test the sample stated in the audit plan and consider extending it if needed
- if the TDR is exceeded then the auditor will increase the level of substantive testing
- discuss the deviation with management and those in charge of governance

Question 11

Misstatements

Answer 11

Any issue identified during a substantive test is called misstatement. The auditor will:
- determine the tolerable misstatement
- test the sample stated in the audit plan
- discuss the misstatement with management and those in charge of governance