Arens14e Ch07 Ppt

Audit Evidence Chapter 7

©2012 Prentice Hall Business Publishing, Auditing Publishing, Auditing 14/e, Arens/Elder/Beasley 14/e, Arens/Elder/Beasley

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Learning

Objective 1

Contrast audit evidence with evidence used by other professions professions..

©2012 Prentice Hall Business Publishing, Auditing Publishing, Auditing 14/e, Arens/Elder/Beasley 14/e, Arens/Elder/Beasley Arens/Elder/Beasley

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Nature

of Evidence

Any 

information used by the auditor to determine whether the information being audited is stated in accordance with established criteria

 The

use of evidence is not unique to auditors

Evidence 

is also used by scientists, lawyers, and historians


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Nature

of Evidence


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Learning

Objective 2

Identify the four audit audit evidence decisions that are needed to create an audit program.


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Audit Evidence Decisions 1. Which audit procedures to use 2. What sample size to select for a given procedure 3. Which items to select from the population 4. When to perform the procedures (timing)


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Audit Program It includes a list of the audit procedures the auditor considers necessary. Sample sizes



Items to select



Timing of the tests



Most auditors use audit software packages to generate audit programs. ©2012 Prentice Hall Business Publishing, Auditing Publishing, Auditing 14/e, Arens/Elder/Beasley 14/e, Arens/Elder/Beasley

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Learning

Objective 3

Specify the characteristics that determine the persuasiveness of of evidence.


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Persuasiveness of Evidence Two determinants:

Appropriateness

Sufficiency

The persuasiveness of evidence can be evaluated only after considering the combination of appropriateness and sufficiency ©2012 Prentice Hall Business Publishing, Auditing Publishing, Auditing 14/e, Arens/Elder/Beasley 14/e, Arens/Elder/Beasley

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Six Characteristics of Reliable Evidence 1. Independence of provider 2. Effectiveness of clients internal controls 3. Auditors direct knowledge 4. Qualification of individuals providing the information 5. Degree of objectivity 6. Timeliness


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Relationships Among Audit Evidence and Persuasiveness Audit Evidence Decisions

Audit procedures and timing

Sample size and items to select

Qualities Affecting Persuasiveness of Evidence

Appropriateness Relevance Reliability Independence of provider Effectiveness of internal controls Auditor's direct knowledge Qualifications of provider Objectivity of evidence Timeliness When procedures are performed Portion of period being audited Sufficiency Adequate sample size Selection of proper population items


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Persuasiveness and Cost In making decisions about evidence for a given audit, both persuasiveness and cost must be considered. The auditors goal is to obtain a sufficient amount of appropriate evidence at the lowest total cost.


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Learning

Objective 4

Identify and apply the eight eight types of evidence used in auditing.


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Types of Audit Evidence Physical Examination Observation

Reperformance

Audit Evidence

Confirmation

Documentation

Analytical procedures Recalculation

Inquiry


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Relationships


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Physical Examination It is the inspection or count by the auditor of a tangible asset. This type of evidence is most often associated with inventory and cash.


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Confirmations Auditing Standards United States

International

Requirements  Auditor

must confirm accounts receivable  Auditors control the mailing and receipt of replies  Electronic confirmations are permitted Confirmations 


are not required

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Information often Confirmed


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Documentation It is the auditors inspection of the clients documents and records.

Internal documents


External documents

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Analytical Procedures

 Understand

the clients industry and business  Assess the entitys ability to continue as a going concern  Indicate the presence of possible misstatements in the financial statements  Reduce detailed audit tests


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Inquiries of the Client It is the obtaining of written or oral information from the client in response to questions from the auditor.


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Recalculation It involves rechecking a sample of calculations made by the client.


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Reperformance It is the auditors independent tests of client accounting procedures or controls that were originally done.


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Observation  Use

ones senses to assess client activities.  Tour plant to obtain a general impression of clients facilities.  Observation is rarely sufficient by itself.  Often need to corroborate with another kind of evidence. ©2012 Prentice Hall Business Publishing, Auditing Publishing, Auditing 14/e, Arens/Elder/Beasley 14/e, Arens/Elder/Beasley

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Appropriateness of Types of Evidence


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Application of Types of evidence to the four Evidence Decisions


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Terms and Types of Evidence Terms

Examine Scan Read Compute Recompute Foot Trace Compare Count Observe Inquire Vouch

Type

of Evidence

Documentation Analytical procedures Documentation Analytical procedures Recalculation Recalculation Documentation/Reperformance Documentation Physical examination Observation Inquiries of client Documentation


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Learning

Objective 5

Understand the purposes of audit documentation.


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Audit Documentation Audit documentation is the principal record of auditing procedures applied, evidence obtained, and conclusions reached by the auditor in the engagement.


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Audit Documentation

 Purposes

of audit documentation

Ownership 

of audit files

Confidentiality 

of audit files


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Sarbanes--Oxley Act Sarbanes The Sarbanes-Oxley Act requires auditors of public companies to prepare and maintain audit working papers for a period of no less than seven years.


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Learning

Objective 6

Prepare organized audit documentation documentation..


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Audit File Contents and Organization


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Permanent Files These files are intended to contain data of a historical or continuing nature pertinent to the current audit.


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Current Files  Audit

program

General 

information

Working 

trial balance

Adjusting 

and reclassification entries

 Supporting

schedules


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Relationship of Audit Documentation to Financial Statements


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Types of Supporting Schedules Analysis   Trial

balance or list

 Reconciliation

Tests 

of amounts

of reasonableness


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Types of Supporting Schedules Summary 

of procedures

Examination 

of supporting documents

Informational   Outside

documentation


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Preparation of Audit Documentation Proper  Files 

identification of each file

indexed and cross-referenced

 Clear

indication of work performed

 Include

State 

sufficient information

conclusions reached


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Preparation of Audit Documentation


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Learning

Objective 7

Describe how technology affects audit evidence and audit documentation.


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Effect of Technology  Audit

evidence is increasingly in electronic form

 Auditors

must evaluate how electronic information

affects their ability to gather evidence Auditors 

use computers to read and examine

evidence Software 

programs are typically Windows-based


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Arens14e Ch07 Ppt

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