Chap004

Auditing and Assurance Services

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ledgers, journal entries, and other adjustments to the financial statements that are not reflected in formal journal entries; and records such as work sheets and spreadsheets supporting cost allocations, computations, reconciliations, and disclosures. Many times the entries in the accounting records are initiated, recorded, processed, and reported in electronic form. Other information that the auditor may use as audit evidence includes minutes of meetings; confirmations from third parties; industry analysts’ reports; comparable data about competitors (benchmarking); controls manuals; information obtained by the auditor from such audit procedures as inquiry, observation, and inspection; and other information developed by, or available to, the auditor that permits the auditor to reach conclusions through valid reasoning. 4-6 Audit evidence is usually persuasive rather than convincing for two reasons. First, since an audit must be completed in a reasonable amount of time and at a reasonable cost, the auditor examines only a sample of the transactions that compose the class of transactions or account balance. Second, due to the nature of evidence, auditors must often rely on evidence that is not perfectly reliable. The types of audit evidence examined by the auditor have different degrees of reliability, and even highly reliable evidence has weaknesses. Therefore, the evidence obtained by the auditor seldom provides absolutely convincing evidence about an audit objective. 4-7 The types of audit procedures and their definitions are: (1) Inspection of records or documents consists of examining internal and external records or documents that are in paper form, electronic form, or other media. (2) Inspection of tangible assets consists of physical examination of assets. (3) Observation consists of looking at a process or procedure being performed by others. (4) Inquiry consists of seeking information of 4-2
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Chapter 04 - Audit Evidence and Audit Documentation knowledgeable persons (both financial and nonfinancial) throughout the entity and outside the entity. (5) Confirmation is the process of obtaining a representation of information or of an existing condition directly from a third party. (6) Recalculation consists of checking the mathematical accuracy of documents and records. (7) Reperformance is the auditor's independent execution of procedures or controls that were originally performed as part of the entity’s internal control, either manually or through the use of CAATs. (8) Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data (AU 329). (9) Scanning is the review of accounting data to identify significant or unusual items.
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