Week 6 Flashcards
Persuasiveness of Evidence
Sufficient = Quantity
Appropriate = Quality
Timeliness
Appropriate = Quality
Relevant
Logical connection between evidence & audit assertion at risk
If high risk that inventory is inappropriately valued, should gather a lot of evidence that proves the value of the inventory
Reliable
Source of the information, internal vs. external held by client vs. external directly to auditor
Expertise of the respondent
Consistency of the information
Sufficient = Quantity
Depends on RMM
High = low DR, more evidence
Low = high DR, less evidence
Persuasiveness of Audit Evidence
Auditor is seeking evidence to corroborate client’s recorded transactions and balances
Greater corroboration is provided by more persuasive evidence
Evidence types vary in persuasiveness
Least to most persuasive:
Evidence generated internally by client
Evidence generated externally, held by client
Externally generated evidence send direct to auditor
Drawing Conclusions
Evidence is the information used to decide
Free of material misstatement
Fair presentation
What constitutes sufficient & appropriate evidence requires professional judgement
Working Papers
What?
Documentation of
Knowledge gathered
Decisions made & why
Tests performed & results
Working Papers
Why
It is your evidence
Support audit opinion
Proof that followed GAAS….thus assist with legal liabilities
Working Papers
How
Each public accounting firm establishes their own approach to preparing & organizing working papers
Types of Working Papers
Permanent
Historical or continuing nature
Ex: articles of corporation, long-term debt contract
Current
All working papers applicable to the year under audit
Ex: Risk assessment & materiality, trial balance, lead schedule, supporting schedules
Characteristics of a good working paper:
Properly Identified
What section is it?
Prepared and reviewed by?
Cross-Referenced
Link to entire audit or supporting schedules
Clearly indicate the audit work performed
Include sufficient information
Can a reasonable person understand what was done?
Conclusions reached should be plainly stated
The audit program consist of 3 parts:
Test of Controls
Test of Details
Analytical Procedures
Test of Controls
Purpose:
Verify risk assessment
Examples:
Observe Inventory Count
Inspect approvals
Reperform bank reconciliations
Analytical Procedures
Purpose:
Assess reasonableness of a balance
Examples:
Mtc expense year over year
Sales commission ratio to commission plan
Test of Details
Purpose:
Verify monetary correctness
Examples:
Confirm cash balance with Bank
Inspect sales to shipping documents
Recalculate client AFDA using their method
