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Unformatted text preview: y costeffective form of audit evidence.
To summarize, the auditor can collect evidence in each of three different
stages in a client’s accounting system to help determine whether the ﬁnancial
statements are fairly stated: (1) the internal control put in place by the client
to ensure proper handling of transactions (e.g., evaluate and test the controls);
(2) the transactions that affect each account balance (e.g., examine a sample of
the transactions that happened during the period); and (3) the ending account
balances themselves (e.g., examine a sample of the items that make up an ending
account balance at year-end). Evidence that relates directly to ending account
balances is usually the highest quality, but also the costliest, evidence. Thus, an
auditor will usually rely on a combination of evidence from all three stages in
forming an audit opinion regarding the fairness of the ﬁnancial statements. On
which of these three areas it is best to focus depends on the circumstances, and
this is generally left to the auditor’s discretion. Chapters 3 and 5 address the types
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This note was uploaded on 12/08/2012 for the course ACCT 564 at Washington University in St. Louis.