ACCT3101_Topic5_08 - Topic 5 lecture

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TOPIC 5 AUDIT 7/8/2009 1 1 ACCT3101 Auditing Topic 5 Audit Risk and Audit Evidence 2 Topic 5 overview 1. Audit risk 2. Audit evidence decisions 3. Sufficient appropriate audit evidence 4. Types of management assertion 5. Types of audit evidence 6. Procedures to gain evidence 7. Analytical procedures 3 Audit risk The auditor: ± Assesses the risks of the client company ± Perform audit procedures to collect audit evidence to test managerial assertions inherent in the financial statements ± In order to provide reasonable assurance / an opinion on whether there are material misstatements in the financial statements of the client. 4 Audit evidence decisions ² Audit procedures specific procedures should be spelled out for instruction during the audit. ² Sample size – how many items should be tested for each audit procedure. ² Items to select – determine which items in the population should be selected. ² Timing –can vary from early in the accounting period to long after it has ended. 1. Which audit procedures to use 2. What sample size to select for each procedure 3. Which items to select from the population 4. When to perform the procedures 5 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 For example, accounts receivable from 5.26 : •General audit balance related objective Æ completeness •Specific balance related audit objective Æ There are no unrecorded receivables. •Procedure: Æ observe how accounts receivable dept records cash •Evidence: Æ OBSERVATION 6 Auditing Procedures – by Purpose ASA500.24 – why perform audit procedures? Risk assessment procedures – to obtain an understanding of the entity and its environment Tests of controls – to test the effectiveness of controls in preventing, detecting or correcting material misstatements Substantive procedures – tests to detect material misstatements at the assertion level. Include tests of details of transactions and balances.
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TOPIC 5 AUDIT 7/8/2009 2 7 Sufficient appropriate audit evidence: ASA500 Auditors require sufficient appropriate audit evidence in order to form their opinion about the financial statements. How much information must be examined? quantity What type of information is used? quality The circumstances of the audit determine which evidence is sufficient and appropriate. Auditors perform audit procedures to obtain evidence in order to check management assertions. 8 Sufficient Appropriate Audit Evidence ASA500.5 – obtain sufficient appropriate evidence to be able to draw reasonable conclusions on which to base the audit opinion. Generally, the auditor must rely on evidence
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This note was uploaded on 08/24/2010 for the course ACCT 3101 taught by Professor Drmarcsim during the Two '09 term at Queensland.

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ACCT3101_Topic5_08 - Topic 5 lecture

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