answers to review questions-arens-chapter 6

answers to review questions-arens-chapter 6 - Review...

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Review Questions 6-1 Generally, it may be said that evidence is used to reach conclusions, however, different evidence is used by auditors than in a medical test, and it is used in different ways. Basis of Comparison Medical Test Audit of Financial Statements Use of evidence Determine presence or absence of certain characteristics based upon specific quantitative criteria Determine if statements are fairly presented Nature of evidence Presence or absence of particles or percentages of material in physical or other tests Various types of audit evidence Party or parties evaluating evidence Laboratory technician Auditor Certainty of conclusions from evidence Some tests have “false positives” or “false negatives,” depending upon the level of accuracy of the instrumentation or matter used in the tests High level of assurance Nature of conclusions Likelihood of presence or absence of certain states of illness Issue one of several alternative types of auditor’s reports Typical consequences of incorrect conclusions from evidence A false negative could result in medical treatment not being provided when it should be; a false positive could result in potentially invasive treatment being provided when it is not needed; errors could result in deterioration of health or even death Users of financial statements make incorrect decisions 6-2 The four major audit evidence decisions that must be made on every audit are: 1. The audit procedures to use. 2. The sample size to select for a given procedure. 3. The particular items to select from the population. 4. The appropriate time to perform the procedure. 6-3 Audit procedures are the detailed instructions for the collection of a particular type of audit evidence that is to be obtained. Since they are the instructions to be followed in accumulating evidence they must be worded carefully to make sure the instruction is clear. 6-4 An audit program section for accounts receivable is a list of audit procedures that will be used to audit accounts receivable for a given client. The audit procedures, sample size, items to select, and timing should be included in the audit program. 6-5 There are two primary reasons why the auditor can only be persuaded rather than convinced that the financial statements are correct:
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1. The cost of accumulating evidence. It would be extremely costly for the auditor to be completely convinced. 2.
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This note was uploaded on 02/19/2012 for the course ACCT Audit taught by Professor Niki during the Spring '12 term at Saint Mary's University Texas.

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answers to review questions-arens-chapter 6 - Review...

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