Module 17 Audit Process: Evidence

Question 1

Once ROMM has been concluded on, the evidence that must be sought in relation to numbers is done through what?

Answer 1

Substantive testing, due to the inherent limitations in internal control, the auditor must always perform some substantive procedures.

Question 2

List the balance assertions

Answer 2

• Existence (E)
• Completeness (C)
• Accuracy, valuation and allocation (AVA)
• Classification(CI)
• Rights and obligation (R&O)
• Presentation (P)

Question 3

List the transaction assertions

Answer 3

• Accuracy (A)
• Cut-off (CO)
• Occurrence (O)
• Completeness
• Classification (CI)
• Presentation (P)

Question 4

Why use assertions?

Answer 4

A clearer definition of specific audit objectives - letting auditor focus on key areas

A clearer demonstration of work done - auditor can demonstrate audit has been done to auditing standards and relevant company law

Question 5

Audit evidence must be sufficient and appropriate, what do they mean?

Answer 5

Sufficiency - a measure of the quantity of the evidence

Appropriateness - a measure of the quality of evidence (relevance and reliability)

Question 6

Appropriate evidence is measured by reliability and relevance - True or false

Answer 6

True

Reliability of evidence is affected by the nature (natural/created evidence/rational argument/testimonial evidence) and source (Auditor/Third Party/Client generated)

Question 7

What is the meaning of sufficient evidence?

Answer 7

It is the balance of finding the right amount of evidence required and the cost effectiveness of obtaining the evidence.

Higher ROMM = higher level of evidence

Question 8

How is sufficiency determined?

Answer 8

The level of materiality

Assessed ROMM of the figure being tested

The sources and quality of available evidence

Question 9

What are the sampling methods auditors use?

Answer 9

• Random selection
• Monetary unit sampling
• Haphazard selection

Question 10

what is sample extrapolation?

Answer 10

This is when the auditor projects sample error onto the population as a whole

Question 11

What are the types of substantive testing approaches?

Answer 11

Substantive analytical procedures - testing the total population

Test of details - selecting specific items within the population for testing

Question 12

What is the difference between tests of controls and substantive procedures?

Answer 12

Test of controls is testing something the client has already done during the year and provides evidence that the clients control procedures prevent/detect and correct missatements

Substantive procedures are the procedures that the auditor undertakes to detect possible misstatements that may exist in the financial statements (testing the numbers) at the year end

Question 13

What does an audit work programme include?

Answer 13

• Client name
• Client year end date
• Title of work programme
• Description of the substantive procedures
• The assertions met
• Initials of the audit staff who completed the substantive procedure
• The date the substantive procedure was completed
• A work paper reference

Question 14

What is substantive analytical procedure?

Answer 14

When analytical procedures are used to identify a material misstatement at the assertion level

Question 15

What analytical techniques are commonly used as a substantive procedure?

Answer 15

Reasonableness test

Trend analysis

Large and unusual items review

Question 16

Evidence collection for test of controls?

Answer 16

• Observation
• Re-preformance
• Inspection of docs
• Enquiry

Question 17

Evidence collection for substantive testing

Answer 17

• Confirmation
• Analytical
• Recalculation
• Inspection of assets
• Inspecation of documents
• Enquiry