Evidence is usually more reliable when it is:
(1) is obtained from independent sources;
(2) is generated internally under effective internal control;
(3) is obtained directly by the auditor;
(4) is in documentary form, whether paper, electronic, or other medium; and
(5) consists of original documents.
Tracing the details of test counts to the final inventory schedule assures the auditor that:
items in the observed physical inventory are included in the inventory records.
The objective of tests of details of transactions performed as substantive procedures is to:
And are they necessary to comply with GAAS?
Detect material misstatements at the relevant assertion level.
The auditor may use a variety of techniques and is not required to use tests of the details of transactions to comply with GAAS.
Effective internal control provides more or lesss assurance about the reliability of audit evidence?
Effective internal control provides more assurance about the reliability of audit evidence.
Evidence should be conclusive rather than persuasive? True or False?
In most cases, evidence that is obtained to enable an auditor to draw reasonable conclusions on which to base the opinion is necessarily persuasive rather than conclusive. The cost of obtaining conclusive evidence may outweigh the benefits.
What is the primary purpose of audit procedures?
To gather evidence.
Most of the auditor’s work in forming an opinion on financial statements consists of obtaining and evaluating audit evidence.
Most of the auditor’s work in forming an opinion on financial statements consists of
Obtaining and evaluating audit evidence.
According to the auditing standards, which term identifies a requirement for audit evidence? (What kind of audit evidence is necessary)
Appropraite audit evidence
The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of
The audit of the income statement focuses on the propriety of handling transactions because most income statement accounts represent large volumes of transactions. The audit of the balance sheet concentrates on verification of account balances.
Any evidence obtained directly by the auditor through what provides more persuasive evidence than evidence obtained indirectly?
- Physical examination
What are blank forms of accounts receivable confirmations requests? Why might this lead to more nonrespnses?
the recipient is to complete the confirmation by providing the balance due to the client. This procedure may require more effort by the recipient and thus limit response rates. Accordingly, the auditor may have to perform alternative procedures.
What are positive confirmation requests?
They ask for reply in all cases. It may ask the confirming parties to state whether they agree with the info given or to provide info. Thus positive confirmation requests obtain evidence only when responses are received.
What are negative confirmations?
No news is good news. If not heard back, that means that they are in agreement. However, a failure to reply is assumed to indicate debtor's agreement, where in reality it might just be a nonreponse.
Negative confirmation requests are not used as the only substantive procedure addressing an assessed RMM at the assertion level unless:
- the assessed RMM is low,
- the auditor has obtained sufficient appropriate evidence about the effectiveness of relevant controls,
- the population consists of many small homogeneous items,
- the expected exception rate is very low, and
- the auditor has no reason to believe that recipients will not consider the requests.
Two assertions for which confirmation of accounts receivable balances provides primary evidence are
Rights and obligations and existence.
The audit working paper that reflects the major components of an amount reported in the financial statements is the
Lead schedules help to eliminate detail from the auditor’s working trial balance by classifying and summarizing similar or related items that are contained on the supporting schedules. A lead schedule contains the detailed accounts from the general ledger making up the line item total in the financial statements; e.g., the cash account in the financial statements might consist of petty cash, cash-general, cash-payroll, etc.
What's included in the current file?
Audit documentation is usually classified into permanent and current files. Current files include schedules and analyses that relate to the current year under audit. The working trial balance is maintained in the current file.
What's included in the permanent file?
Permanent files include schedules, documents, and records with continuing audit significance for a specific client.
(1) the articles of incorporation, share options, contracts, and bylaws; (2) the engagement letter; (3) analyses from previous audits of accounts of special importance to the auditor; and (4) information about internal control, e.g., flowcharts.
The auditor is required to retain audit documentation:
For a period to satisfy applicable legal or regulatory requirements.
In creating lead schedules for an audit engagement, a CPA often uses automated audit documentation software. What client information is needed to begin this process?
General ledger information, such as account numbers, prior-year account balances, and current-year unadjusted information.
An auditor ordinarily uses a working trial balance resembling the financial statements without notes, but containing columns for
Reclassifications and adjustments.
The audit process begins with the balances from the ledger recorded on a working trial balance, which is a vehicle for controlling preparation of other audit documentation and summarizing data. As the audit proceeds, material reclassifications and adjustments are documented in the working papers and recorded on the working trial balance. Reclassifications relate to proper presentation of accurate balances, for example, the transfer of a noncurrent payable due in the next period to a current liability account. Adjustments correct client misstatements and affect balances to be reported.
Audit documentation should:
(1) demonstrate that the engagement complied with PCAOB standards,
(2) support the basis for conclusions about all relevant assertions, and
(3) demonstrate that the accounting records agree or reconcile with the financial statements.
Why is the auditor least likely to be interest in reviewing income statement accounts from a predecessor auditor documentation?
Because income statement accounts have less significance for an initial audit becuase they have no beginning balances.
A bank implemented an expert system to help account representatives consolidate the bank’s relationships with each customer. The expert system will be used to
An expert system relies on a computer’s ability to make decisions in a human way. It asks a series of questions and uses knowledge gained from a human expert to analyze answers and make a decision.
A primary advantage of using generalized audit software packages to audit the financial statements of a client that uses a computer system is that the auditor may
Access information stored on computer files while having a limited understanding of the client’s hardware and software features.
Specialized audit software
May be written in a procedure-oriented language.
Specialized audit software is written to fulfill a specific set of audit tasks. The purposes and users of the software are well defined before the software is written. Auditors develop specialized audit software for the following reasons:
- Unavailability of alternative software
- Functional limitations of alternative software
- Efficiency considerations
- Increased understanding of systems
- Opportunity for easy implementation
- Increased auditor independence and prestige
Generalized audit software is useful for both tests of controls and substantive procedures. It can be used to perform audit tasks such as:
(1) sampling and selecting items;
(2) testing extensions, footings, and calculations;
(3) examining records;
(4) summarizing and sorting data; and
(5) performing analytical procedures.
The two requirements crucial to achieving audit efficiency and effectiveness with a personal computer are selecting
The appropriate audit tasks for personal computer applications and the appropriate software to perform the selected audit tasks.