S1 - audit evidence Flashcards
what does evidence need to be
sufficient = quantity and quality
Appropriate = relevant and reliable
reliable and less reliable sources of evidence
Reliable
Independent
Internal if effective controls
Evidence obtained by auditor
Original documents
Less reliable
internal evidence not circulated externally
Internal if ineffective controls
Evidence obtained indirectly
Oral
Photocopies
what are the procedures to gather evidence
inspection of documents
Inspection of tangible assets
Observation
Enquiry
Confirmation
Recalculation
Reperformance
Analytical procedures
what are the analytical procedure considerations
suitability
Reliability
Expectation
Difference from expected values
advantages and disadvantages of analytical procedure considerations in evidence for misstatements
Advantages
cost effective
Efficient way to reduce DR
Tests for under and over statement at same time
Wide coverage of business - adds value
Disadvantages
needs reliable data
Little use for new or changed businesses
Need good knowledge of business to form appropriate expectations
Consistency may conceal material error
Tends to be performed mechanically
Needs experiences staff
what is audit sampling
Statistical sampling
random selection of a sample
Use of probability theory to evaluate results
Non statistical is a Matter of judgement
what is sampling risk
sample chosen is different from that which would’ve been formed if the whole population had been checked
Tests of control - risk of over or under reliance
Substantive tests - risk of incorrect acceptance or rejection
what is sample size
based on level of risk that the firm will accept of not detecting an error
Higher sample gives lower risk
Cost benefit trade off
Sampling tables
what to do if result is more than tolerable error
increase sample size
Apply different substantive procedures
Request that client adjusts balance
Issue qualified or adverse opinion
what are accounting estimates
arise from judgements made by management rather than transitions with third parties
Risk of misstatement is greater
Review and test process
Evaluate data
Evaluate assumptions
Test calculations
Compare with prior periods
Consider approval process
Compare with independent estimate
Review subsequent event
Use an independent estimate for comparison
Review subsequent events
what is evidence of receivables
receivables circularisation
Provided by owing customer
Customer balance may not agree with client balance but can test reconciling items
what is evidence of payables
suppliers send monthly statements to clients stating outstanding balance
Existence and valuation
Should be reconciled to the clients records
Differences usually due to timing but may represent errors
what is evidence of inventories
count stock at least once a year
Auditor should attend count if inventory is material
Plan:
If count procedures are adequate
Timing of count
Locations
Use of an expert
what is evidence of bank and cash
bank reconciliation
Test mathematical accuracy
Agree to general ledger total
Ensure unrepresented cheques are within correct dates
Verify a sample of these after year end
what are anti fraud tests
teeming and lading occurs when a receipt from one customer is stolen and the receipt from the next customer is used to hide the loss
Usually occurs when segregation of duties is poor
Surprise interim
Surprise cash count
Compare daily cash receipts journal entries with daily deposit slips
