132CHAPTER 5

132CHAPTER 5 - Audit Evidence and Documentation CHAPTER AN...

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1 Bob Anderson, UCSB CHAPTER 5-1 5 CHAPTER Audit Evidence and Documentation Bob Anderson, UCSB Intro & Chapter 5-2 AN AUDIT: SUMMARY ± Plan the engagement: Identify risks and areas where internal controls may be relied upon ± Where internal controls may be relied upon, test those controls to justify reliance ± Apply substantive procedures for everything else. ROUTINE VS. NON-ROUTINE TRANSACTIONS Bob Anderson, UCSB Intro & Chapter 5-3 Management Assertions EVERYTHING IN THE FINANCIAL STATEMENTS FALLS INTO ONE OR MORE OF THE FOLLOWING ± C ut-off ± E xistence or Occurrence--Assets, liabilities, and owners’ equity accounts reflected in the financial statements exist; the recorded transactions have occurred. ± ompleteness--All transactions, assets, liabilities, and elements of owners’ equity that should be presented in the financial statements are included. ± R ights and Obligations--The client has rights to assets and obligations to pay liabilities that are included in the financial statements. ± V aluation or Allocation--Assets, liabilities, owners’ equity, revenues, and expenses are presented at amounts that are determined in accordance with generally accepted accounting principles. ± P resentation and Disclosure--Accounts are described and classified in the financial statements in accordance with generally accepted accounting principles, and all material disclosures are provided. MEMORY TECHNIQUE: C onventionally arly onversations emain ery olite Bob Anderson, UCSB Intro & Chapter 5-4 THIRD STANDARD OF FIELDWORK So management makes the C,E,C,R,V,P assertions. It is then the auditors responsibility to validate those assertions, as required by the third standard: Sufficient Appropriate Audit Evidence” is to be obtained to afford a reasonable basis for an opinion regarding the financial statements under audit” REQUIRES JUDGMENT RELEVANT & RELIABLE (or VALID)- see next slide
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2 Bob Anderson, UCSB Intro & Chapter 5-5 Competence of Evidential Matter To be appropriate evidence must be: ± Relevant- does it apply to the objective we are testing? ± Reliable- Is the evidence any good? ± Independent sources have greater reliability than those within the client organization. ± Strong internal control increases reliability of evidence created within the client organization. ± Directly obtained evidence is more reliable than evidence obtained second hand. Bob Anderson, UCSB Intro & Chapter 5-6 Types of Evidence ± Accounting information system ± Documentary evidence ± Third-party representations ± Physical evidence ± Computations ± Data interrelationships ± Client representations ANALYTICAL PROCEDURES USUALLY START WITH DATA INTER- RELATIONSHIPS, BUT LEAD TO OTHERS ANALYTICAL PROCEDURES Bob Anderson, UCSB Intro & Chapter 5-7 INTERNAL CONTROLS Many “classes of transactions” are very “routine” to a client. Accordingly the client may establish strong internal controls over those transactions to ensure that misstatements are Prevented or Detected in a timely fashion.
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This note was uploaded on 08/06/2008 for the course ECON 132A taught by Professor Anderson during the Spring '08 term at UCSB.

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132CHAPTER 5 - Audit Evidence and Documentation CHAPTER AN...

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