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Chapter 07 Slides - AuditEvidence Chapter 7 11 Acct...

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7 - 1 Click to edit Master subtitle style Acct 4510/5510 Audit Evidence Chapter 7 11
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7 - 2 Acct 4510/5510 Four Audit Evidence Decisions Needed To  Create An Audit Program 22 1. Which audit procedures to use The detailed instruction that explains the audit evidence to be obtained the audit. 2. What sample size to select for a given procedure 3. Which items to select from the population 4. When to perform the procedures (timing)
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7 - 3 Acct 4510/5510 Audit Program It includes a list of the audit procedures the auditor considers necessary. Most auditors use computers to facilitate the preparation of audit programs. Ø Sample sizes Ø Items to select Ø Timing of the tests 33
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7 - 4 Acct 4510/5510 Learning Objective 3 Specify the characteristics that determine the persuasiveness of evidence. 44
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7 - 5 Acct 4510/5510 Persuasiveness of Evidence Ø Appropriateness § A measure of the quality of evidence, meaning its relevance and reliability in meeting audit objectives. This deals with the audit procedures selected. Ø Sufficiency § A measure of the quantity of evidence that is measured primarily by the number of items (or sample sizes) selected for examination in the audit . Two determinants (from third standard of field work): 55
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7 - 6 Acct 4510/5510 Six Characteristics of Reliable Evidence 66 1. Independence of provider 2. Effectiveness of client’s internal controls. 3. Auditor’s direct knowledge 4. Qualification of individuals providing the information. 5. Degree of Objectivity 6. Timeliness
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7 - 7 Acct 4510/5510 Look at Problem 7-35 77 1. Confirmation with business organizations Qualifications 2. Physically examine three-inch steel plates Qualifications (in this case the auditor’s) 3. Examine documents when several Effectiveness competent people are checking each of client’s IC other’s work 4. Examine inventory of parts for the number Objectivity of units on hand 5. Discuss potential lawsuits with CPA firm’s Independence legal counsel Item More Reliable Evidence Factor(s)
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7 - 8 Acct 4510/5510 Look at Problem 7-37 88 6. Confirm a bank balance Objectivity 7. Confirm a bank balance Independence 8. Physically count the client’s inventoryAuditor’s Knowledge 9. Physically count the client’s inventoryIndependence and Auditor’s Knowledge Item More Reliable Evidence Factor(s)
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7 - 9 Acct 4510/5510 Relationships Among Audit Evidence and  Persuasiveness Audit Evidence Decisions Qualities Affecting Persuasiveness of Evidence Audit procedures and timing Appropriateness Relevance Reliability Independence of provider Effectiveness of internal controls Auditor's direct knowledge Qualifications of provider Objectivity of evidence Timeliness When procedures are performed Portion of period being audited Sample size and items to select Sufficiency Adequate sample size Selection of proper population items 99
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7 - 10 Acct 4510/5510 Persuasiveness and Cost In making decisions about evidence for a given audit, both persuasiveness and cost must be considered.
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