Chapter 7 Reading Notes

Chapter 7 Reading Notes - Chapter 7 Reading Notes AUD I T...

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Unformatted text preview: Chapter 7 Reading Notes AUD I T EV I DENCE • Foundation of any audit, is the evidence gathered and evaluated by the auditor. • Auditor must have knowledge and skill to accumulate sufficient appropriate evidence on every audit to meet the standards of the profession. Nature of Evidence • Evidence – any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria. • Evidence includes information which is highly persuasive and less persuasive • Evidence is used to draw conclusions Auditing Evidence Decisions • A tough decisions facing the auditors is determining the appropriate types and amounts of evidence needed to be satisfied that the client’s financial statements are fairly stated, and that client maintained effective internal controls over financial reporting. • There are FOUR decisions about what evidence to gather and how much of it to accumulate: • Which audit procedures to use? • What sample size to select for a give procedure? • Which items to select from the population? • When to perform the procedures? • Audit Procedures • This is the detailed instruction that explains the audit evidence to be obtained during the audit. • Very specific • X: obtain cash disbursement journal and compare payee name, amount and date on cancelled check • Sample Size • Auditor can vary this from one to all the items in the population being tested • X: Auditor selects a sample size of 50 checks for comparison with the cash disbursements journal. • Decision is made by auditor • I tems to Select • Auditor must determine which items in the population to test. • X: select 50 checks from 6000, to test. Methods include randomly, select a week and examine the first 50 checks, or those that the auditor most likely thinks are in error. • Timing • Audit usually cover a period of a year. • Normally an audit is not completed until several weeks or months after the end of the period. • Timing decisions is also affected by when the client needs the audit done. Normally 1 to 3 months. • SEC requires that all public company’s file within 60 to 90 days of company’s fiscal year. • Also when auditor thinks the timing is the most effective. • The list of audit procedures for an audit area or an entire audit is called and audit program. • The audit program contains the procedures, includes sample sizes, items to select and the timing of the tests. Persuasiveness of Evidence • Third standard of fieldwork requires the auditor to accumulate sufficient appropriate evidence to support the opinion issued. • Because the cost of audit, auditor will never be completely convinced that the audit is correct....
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This note was uploaded on 11/23/2009 for the course ACCT 411 taught by Professor Jackson during the Fall '09 term at Michigan State University.

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Chapter 7 Reading Notes - Chapter 7 Reading Notes AUD I T...

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