Audit evidence

University of British Columbia **We aren't endorsed by this school
COMM 455
Oct 25, 2023
Uploaded by CommodoreBraveryRam50 on
Audit evidence 1 Audit evidence Note Done Created time Reviewed Need sufficient appropriate audit evidence to concluse and give opinion. sufficient = quantity appropriate = quality audit evidence: source documents and accounting records underlying F/S and other info to audit Audit evidence decisions: (decide the nature, extent, timing of audit procedure) nature: which audit procedure to use for collecting audit evidence cost-benefit trade-off (many procedures but determine the most suitable ones) extent: 1. sample size and 2. high-value, key items, and representative sample 1.# item to test 2.high risk of errors key item is unusal items (ex: -1 inventory) timing: when to perform audit procedure and what period of time is covered procedure at interim period or year-end? Audit program: list of detailed audit procedures for each cycle based on NET ex: sample size (E) items to select (E) timing (T) audit procedure (N) existence rights AVA completeness 80 customer 30 largest, 50 randomly year-end comfirm accounting.. x x x trace 30 itmes 20 oldest, 10 random interim obtain an aged ... x How auditor developed audit program? auditor determines which management assertions are applicable then design audit procedures and indicate NET for each assertion Sufficient appropriate audit evidence (SAAE) rely on persuasive evidence (not conclusive evidence) Sufficient (quantity) - how much evidence is enough specific item tests @October 13, 2023 10:24 AM
Audit evidence 2 high value items and key items → stratificaiton representative item tests statistical compute sample size (ex: 90% confidence, N= 50) probabilistic selection (use this to determine N in previous) non-statistical judgement sample size (use judgement to come out with N=50) non-prob selection haphazard (chose reamdonly) block (cut-off testing) factors impact sample size: auditor expectation of error (increase), client's internal controls (decrese), materiality (low M → increase) Appropriate (quality)- relate to relevance and reliability relevant assertions (procedure needs to relate to the assertions you want) reliable nature doc, visual, oral source audit, 3rd party (more reliable), client also consider: independence of auditor, client's internal control, auditor's direct knowledge of evidence, person qualify to provide evidence, objective of evidence Timeliness B/S account: evidence more persuasive if audit at B/S date (Y/E) I/S account: evidence more persuasive if audit the entire year Methods to obtain audit evidence method eg inspection records, doc, tangible asset observaiton inventory count inquiry ask client questions comfirmation send letters to customers, banks, lawers to confirm recalculation recalculate amount reperformance reperform the bank reconciliation analytical procedures review engagement (inquiry and analytical procedures) Analytical procedures evaluations of financial info through analysis of plausible relationships among both financial and non-financial data if relationships inconsistnet that what we expect → look into details
Audit evidence 3 5 methods: 1. compare client and industry data 2. compare client data with similar prior-period data 3. compare client data with client-determined expect results (budgets) 4. compare client data with auditor-determined expected results (predictive test) 5. compare client data with expected results using non-financial data (ex: looking at wage expense → look at # of employees) When to use analytical procedures: purpose planning stage (REQUIRED) testing stage completion stage (REQUIRED) assess going concern x gain understanding of clients business, risk assessment x identify potential material misstatement x x (at the end of the audit, manager do it) reduce detailed testing that would otherwise need to be done (for some low-risk material exp.) x
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