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ACC 4313 Ch8

Terms in this set (47)

The purpose of an audit is to provide
financial statement users with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework
reasonable assurance
a high level of certainty, but not absolute, that the conclusion reached by the auditor is correct
audit evidence
all the information, whether obtained from audit procedures or other sources, that is used by the auditor in arriving at the conclusions on which the auditor's opinion is based
sufficient evidence
an amount or quantity of evidence necessary for an auditor to obtain reasonable assurance
appropriate evidence
evidence that is both relevant to the assertion being tested and reliable in nature
relevant
relating to the assertion being tested
reliable
nature and source of evidence
nature of the procedures
relates to the quality, or appropriateness, of those procedures
extent of procedures
relates to the sufficiency of evidence obtained from audit procedures
how are quality and quantity of evidence related?
-The quantity of evidence needed from audit procedures depends in part on the quality of procedures performed and evidence obtained.
-As the auditor is able to obtain higher quality evidence, the quantity of evidence needed generally decreases.
What relates to the amount or quantity of evidence the auditor obtains in the course of the financial statement audit?
The amount or quantity of the evidence is referred to as the extent of audit evidence or as the sufficiency of evidence.
what are the 3 types of evidence gathering procedures?
risk assessment
tests of internal controls
substantive testing
when are risk assessment procedures conducted?
during the planning stage of the audit
risk assessment procedures should include
-analytical procedures applied as risk assessment procedures
-inquiries of management
-observation and inspection of relevant information such as the entity's plant facilities or the entity's operations
what are 3 general methods for obtaining evidence?
-tests of controls
-tests of transaction details
-tests of account balances
how is testing of internal controls on specific types of transactions efficient?
the auditor can often save a significant amount of time by carefully testing the controls over the class of transactions rather than attempting to separately test each transaction
reliance approach
An approach to auditing a client's financial statements in which the auditor plans to rely on internal controls for a portion of his or her audit evidence.
Tests of controls provide which type of audit evidence?
Tests of controls provide indirect evidence to the auditor regarding the fair presentation of the financial statements.
Auditors have the option of testing account balances directly or testing transactions that make up the account balance.
This statement is true. Auditors can design tests that relate to the account balance as a whole, or can design tests that relate to specific transactions making up the account balance.
Risk assessment procedures performed when deciding whether to audit the client and during the planning phase of the audit are included in the required evidence auditors must obtain when performing an audit.
Risk assessment procedures pertaining to client acceptance/continuance or planning the audit are part of the auditor's evidence. Other sources of evidence include previous years' audits, and audit procedures performed during the course of the audit.
what are some examples of audit procedures?
inspection of tangible assets
inspection of records and documents
observation
external confirmation
recalculation
reperformance
analytical procedures
scanning
inquiry
inspection of tangible assets
provide assurance regarding the existence assertion for tangible assets
provide some evidence regarding obsolescence or damage, which would impact the valuation assertion of the asset
what aspects does inspection of tangible assets cover?
existence and valuation
inspection of records and documents
includes examining documents and records such as contracts, minutes of company or board meetings, loan and lease agreements, as well as documents supporting transactions
what does inspection of records and docs cover?
can provide evidence on a number of assertions depending on the purpose of the test and the documents being examined like occurrence and cut off
often includes tracing or vouching
tracing
a document inspection process that includes following a sample of transactions from its source docs to the appropriate ledger accounts
vouching
a documentation process that includes following a sample of recorded transactions toward the source documents to validate that the record actually occurred
vouching is commonly used
to provide evidence regarding management's assertion of occurrence
which assertion is tracing used for?
Tracing provides evidence regarding the completeness assertion, which suggests that all transactions that actually occurred during the period have been recorded in the client's accounting system
starting at source docs --> recorded transactions
tracing
starting with recorded transactions --> source docs
vouching
observation
looking at a process or procedure being performed by others
what is the limitation with observance?
people often act differently when they are being watched therefore, auditors generally consider evidence obtained from observation as less reliable than other types of evidence
external confimation
includes obtaining a direct written response from a third party providing evidence on some aspect of a management assertion
what is external confirmation commonly used for?
verifying the existence of a client's customers to then verify the existence of accounts receivables balances.
recalculation
checking the mathematical accuracy of documents or records
reperformance
independent execution of procedures or controls that were originally performed by company personnel
analytical procedures
evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data
what are some examples of analytical procedures?
ration analysis
trend analysis
regression analysis
reasonableness test
scanning
involves the auditor reviewing records to identify suspicious or unusual transactions or account balances
if scanning doesn't provide direct evidence to mgt assertions, why do auditors use it?
it is a valuable audit procedure to help an audit engagement team determine where to follow up with substantive audit procedures
inquiry
involve seeking information from key individuals who have information that is relevant to the audit verbally or written
letter of audit inquiry
requests information from the client's external legal counsel regarding litigation, claims, and assessments against the client
what's the purpose of a letter of audit inquiry?
to ensure proper reporting of these contingencies in the financial statements
Audit evidence is higher in quality if
it is both relevant and reliable
Audit evidence is relevant if
there is a logical connection between the evidence and the assertion being tested
Evidence is reliable if
it can be trusted for the purpose of drawing conclusions
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