L4 Notes_Part_2 - Rights & obligations...

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Characteristics of Evidence: Sufficiency Example: Cable Co. confirmation History Adequacy of sample size (materiality, risk , expectation Materiality = f(size of account and volume of transactions running through it, likelihood of misstatement, tendency toward over and understatements) = f(inherent risk x control risk) Audit Risk = f(who uses F/S and how do they use them, 2) financial distress of client, management’s integrity) Expectation = (prior experience, evidence obtained during planning) 100/200 is better than 50/200 but is 100/200 better than 50/100 Selecting appropriate items -Largest, most recent, random, outliers -Ex: petty cash - washroom Arens, Elder, Beasley
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Management Assertions - Financial Statements Transactions Occurrence Completeness Accuracy Cutoff Classification Accounts Existence
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Unformatted text preview: Rights & obligations Completeness Valuation & allocation Presentation & Disclosure Occurrence Rights & obligations Completeness Classification & understandability Accuracy & Valuation Types of Evidence Physical Examination -Rationalism v. Existentialism (ex: paint manufacturer) -should physically examine inventory -Ball bearings, other objectives, Doughtie Foods, McKesson Robbins Confirmation -Should confirm A/R -Control (Ultramares, Giant Stores) Documentation -Check, juniors duty -Vouch v. trace (next slide) Observation -obsolete inventory, quality of personnel, and condition of facilities -Ex: Cyclone fence scoped at $20,000 Inquiries of Client relevance, importance, fraud risk Reperformance Analytical Procedures (Leslie Fay)...
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L4 Notes_Part_2 - Rights & obligations...

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