sufficient appropriate evidence

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why does an auditor gather audit evidence
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Terms in this set (25)
records of electronic fund transfers
general/subsidiary ledgers
journal entries

accounting records alone do not provide sufficient support for the audit opinion BUT internal consistency among accounting records provides some evidence that the FS are presented fairly
in certain entities, some accounting records and corroborating evidence are only available in electronic form

although electronic evidence may be initially available it may not be retrievable indefinitely

auditor should therefore consider the time during which information exists or is available in determining the NET of audit procedures
- the auditor provides reasonable assurance not absolute that the FS are free from material misstatements thus the auditor is not a guarantor
- also cost-benefit considerations prohibit an examination of 100% of the accounting data
- therefore it is generally not practical or possible to obtain assurance beyond a reasonable doubt and the auditor usually must rely on evidence that is persuasive rather than conclusive
- persuasiveness is a subjective concept and relates uniquely to each audit
appropriateness of audit evidence- appropriate audit evidence must be reliable and relevant - appropriateness of audit evidence depends on it being pertinent, objective, timely and corroborated by other evidencerelevance of audit evidenceevidence must relate to the FS assertion under consideration (COVER U)PCAOB standards state that relevance of evidence depends on- the design of the audit procedure and whether it is designed to test the assertion directly and whether it is designed to test for over/understatement - timing of audit proceduresreliability of audit evidence- reliability of audit evidence depends on the circumstances under which it is gathered - reliability of audit evidence is also influenced by its source and natureaudit evidence hierarchy (AEIOU)from most reliable to least 1. auditor's direct knowledge 2. external evidence 3. internal evidence 4. oral evidence U know it!!auditor's direct knowledgeany evidence obtained directly by the auditor (through observation, physical examination, inspection, recalculation) provides more persuasive evidence than evidence obtained indirectlyexternal evidenceexternal evidence obtained from independent sources outside the entity provides greater assurance of reliability than internally generated evidencetypes of external evidence1. evidence sent directly to the auditor 2. evidence received and held by the client evidence sent directly to the auditor (bank confirmation) is more reliable than evidence received and held by the clientinternal evidenceinternal evidence generated within the entity is not as reliable as external evidence BUT strong effective internal controls improve reliability internal evidence includes - purchase orders - sales orders - general ledgers - management reportsoral evidenceoral evidence is less reliable than evidence in documentary form (original documentation more reliable than photocopies) oral evidence includes statements made by clients concerning the procedures involved in a given transaction resulting in the explanation of an account balanceconsistency of evidencewhen audit evidence obtained from different sources is consistent, a greater degree of assurance is providedinformation produced by the clientif the auditor intends to use information produced by the client, the auditor should determine whether the information is sufficiently reliable for auditor's purposes by - obtaining evidence about accuracy and completeness of info - evaluating whether info is sufficiently precise and detailed for auditor's purposesresults of further audit procedures may lead the auditor to- reassess RMM - identify control deficiencies as a result of tests of controls or substantive procedures - identify misstatements as a result of substantive proceduresreassessing RMM- the audit evidence obtained may cause the auditor to modify the initial risk assessment - when there is a change in assessed RMM, the auditor should modify the audit procedures accordingly - tests of controls may indicate that the controls are not operating effectively which will result in a higher RMM and more extensive and persuasive substantive procedures - if material misstatements are discovered while performing substantive procedures that were not detected by entity's controls it could indicate significant deficiencies or material weaknesses which will cause auditor to reassess RMMcontradictory vs. supporting information- auditor should take into consideration all relevant audit evidence regardless of whether the evidence corroborates or contradicts the assertions in the FS - auditors should not ignore contradicting evidence - contradicting evidence should be documented - often discovery of contradicting evidence results in the need for additional procedures and obtaining more persuasive evidence