CHAPTER 6 AUDIT EVIDENCE AUDIT EVIDENCE DECISIONS AUDIT

CHAPTER 6 AUDIT EVIDENCE

AUDIT EVIDENCE DECISIONS • • • AUDIT PROCEDURES (NATURE) SAMPLE SIZE (EXTENT) ITEMS TO EXAMINE TIMING AUDIT PROGRAM

PERSUASIVENESS OF EVIDENCE • RELEVANCE – RELATED TO ITEM BEING EXAMINED • COMPETENCE – INDEPENDENCE OF PROVIDER – EFFECTIVENESS OF INTERNAL CONTROLS – AUDITOR’S DIRECT KNOWLEDGE – OBJECTIVITY OF EVIDENCE

• SUFFICIENCY – QUANTITY OF EVIDENCE • EXPECTATION OF MISSTATEMENTS • EFFECTIVENESS OFINTERNAL CONTROLS • REPRESENTATIVENESS OF ITEMS SELECTED – RELATIONSHIP TO COMPETENCE • MORE COMPETENT, LESS NEEDED – TIMING • INTERIM • YEAR END

TYPES OF EVIDENCE • PHYSICAL EXAMINATION – COUNTING CASH – EXAMINING DOCUMENTS – OBSERVING INVENTORY • CONFIRMATION – WRITTEN OR ORAL COMMUNICATION – THREE TYPES • POSITIVE - BLANK • POSITIVE - INFORMATION PROVIDED • NEGATIVE

• DOCUMENTATION – EXAMINATION OF DOCUMENTS SUPPORTING AUDIT OBJECTIVES • EXTERNAL DOCUMENTS • INTERNAL DOCUMENTS – VOUCHING • GOING FROM RECORD TO DOCUMENTS • TESTS EXISTENCE – TRACING • GOING FROM DOCUMENTS TO RECORD • TESTS COMPLETENESS

• OBSERVATION – AUDITOR LOOKING TO VERIFY EXISTENCE • INQUIRIES OF CLIENT – ORAL OR WRITTEN – MUST BE SUPPORTED BY CORROBORATING EVIDENCE • REPERFORMANCE – AUDITOR RECALULATES • ANALYTICAL PROCEDURES – COMPARISONS AMONG AND BETWEEN DATA

RELIABILITY OF EVIDENCE • THREE PRESUMPTIONS – AUDITOR KNOWLEDGE USUALLY HIGHEST – OUTSIDE EVIDENCE USUSALLY HIGHER THAN INTERNAL EVIDENCE – STRONG INTERNAL CONTROL BETTER THAN WEAK • COST USUALLY VARIES DIRECTLY WITH RELIABILITY

TERMS USED IN AUDIT PROCEDURES • • • EXAMINE - DETAILED STUDY OF ITEM SCAN - OVERVIEW OF ITEM COMPUTE - AUDITOR CALCULATION RECOMPUTE - AUDITOR REDO CLIENT FOOT - ADD COLUMN TABLE 6 -6, PAGE 190

ANALYTICAL PROCEDURES • PURPOSES OF ANALYTICAL PROCEDURES – UNDERSTAND CLIENT BUSINESS – ASSESS ABILITY TO CONTINUE IN BUSINESS – ATTENTION DIRECTOR • POSSIBLE MATERIAL MISSTATEMENTS – REDUCTION OF DETAILED TESTS • NO UNUSUAL FLUCTUATIONS • ANALYTICAL PROCEDURES ARE USUALLY LOWER COST

• TIMING OF ANALYTICAL PROCEDURES – PLANNING PHASE • REQUIRED – – UNDERSTAND ASSESS GOING CONCERN POSSIBLE MISSTATEMENTS REDUCE DETAILED TESTS – TESTING PHASE • NOT REQUIRED – MISSTATEMENTS – REDUCE TESTING – COMPLETION PHASE • REQUIRED – ASSESS GOING CONCERN – MISSTATEMENTS

• TYPES OF ANALYTICAL PROCEDURES – COMPARE CLIENT DATA WITH • • • INDUSTRY DATA PRIOR PERIOD DATA CLIENT-DETERMINED RESULTS AUDITOR-DETERMINED RESULTS EXPECTED RESULTS