S05-Evidence - AUDIT EVIDENCE SECTION 5 Audit Evidence...

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AUDIT EVIDENCE SECTION 5
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Audit Evidence Relates to the third examination standard Sufficient appropriate audit evidence should be obtained by such means as: To afford a reasonable basis to support the? Audit procedure must be both effective and efficient
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Who is responsible for the accuracy of the recorded transactions prepared in accordance with GAAP? Who is responsible for the detection of error and fraud? The fairness of presentation of the F/S? The auditors need to accumulate sufficient appropriate audit evidence
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The Nature of Evidence The underlying accounting data is indispensable as it provides the basis for the client’s F/S UNDERLYING ACCOUNTING DATA Worksheets, Computations, Reconciliations CORROBORATING INFORMATION Confirmations, Computation, Analysis + SUFFICIENT APPROPRIATE AUDIT EVIDENCE =
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Evidence Matter for Tests of Controls Tests of controls or compliance tests Second examination standard There should be a study and evaluation of those internal controls on which the auditor subsequently relies
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Four primary concerns 1. Was the specific control procedure actually performed? 1. Was it performed properly? 1. By the appropriate person? 1. Throughout the period of reliance?
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Two categories for tests of controls: 1. Document inspection 1. Inquiry and observation
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Remember the third examination standard: The auditor must obtain sufficient and appropriate audit evidence to support the audit opinion The auditor employs substantive procedures to gather evidence relating to transactions and balances
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Sufficiency of Evidence Pertains to quantity Auditor’s judgment may be affected by: Materiality and Risk Economic factors Size and characteristics of the population
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Materiality and Risk Quantity inversely related to materiality Thus as materiality quantity Risk is directly related to quantity
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Economic Factors Auditors work within economic limits Auditor should not accept client-imposed time and cost restrictions
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Population Size and Characteristics Sampling is a practical necessity Generally the larger the population, the larger the sample There is an upper limit Population characteristics Uniform vs. non-uniform populations
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Quality of Evidence How appropriate is the evidence? Considerations for quality 1. Relevance Evidence must be pertinent If the audit objective is inventory quantity? But how about ownership of a fixed asset?
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1. Source The circumstances in which the evidence is obtained affects the quality of the evidence Testing the Accounts Receivable balance a. Examine evidence within the client’s organization b. Ask the customer to communicate with you directly
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When evidence is obtained from independent sources A good system of internal control Direct personal knowledge of the auditor
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1. Timeliness The date at which the evidence is obtained E.g.
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This note was uploaded on 05/08/2011 for the course ACTG 3P11 taught by Professor Ademson during the Winter '10 term at Brock University, Canada.

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S05-Evidence - AUDIT EVIDENCE SECTION 5 Audit Evidence...

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