modul7 auditing1 bj 8e ch06 audit evidence

Modern Auditing:
Assurance Services and the Integrity
of Financial Reporting, 8th Edition
William C. Boynton
California Polytechnic State
University at San Luis Obispo

Raymond N. Johnson
Portland State University

Chapter 6 – Audit Evidence

Chapter 6 Overview

Audit Evidence Defined
• Audit Evidence
– Accounting records
– Corroborating information

• Accounting Records
• Other Information

Assertions and Specific Audit
Objectives
• Five Management Assertions (GAAS)
– Existence and Occurrence

– Completeness
– Rights and Obligations
– Valuation or Allocation
– Presentation and Disclosure

Assertions and Specific Audit
Objectives
• Transaction Class Audit Objectives
– Occurrence

– Completeness
– Accuracy
– Cutoff
– Classification

Assertions and Specific Audit
Objectives
• Account Balance Audit Objectives
– Existence

– Completeness
– Rights and Obligations
– Valuation and Allocation

Assertions and Specific Audit
Objectives
• Disclosure Audit Objectives
– Occurrence and Rights and Obligations

– Completeness
– Understandability
– Accuracy and Valuation

Sufficiency of Audit Evidence

• Materiality
• Risk of Material Misstatement
• Size of Population
• Characteristics of Population

Sufficiency of Audit Evidence

Competency of Evidence
• Relevance of Audit Evidence

• Reliability of Audit Evidence

• Professional Judgment

Reliability of Audit Evidence

Reliability of Documentary
Evidence

Study Break

1. Which of the following is not a
transaction class audit objective?
A. Existence
B. Occurrence
C. Accuracy
D. Cutoff
A. Existence

Study Break
2. Which of the following is not an
account balance audit objective?
A. Existence
B. Completeness
C. Classification
D. Rights and Obligations
C. Classification

Study Break
3. All of the following affect the sufficiency
of audit evidence except:

A. Materiality
B. Risk of Material Misstatement
C. Relevance of Audit Evidence
D. Size and Characteristics of the
Population
C. Relevance of Audit Evidence

Objectives of Audit Procedures
• Obtain an understanding of the
entity and its environment
• Test operating effectiveness of
controls
• Support assertion or detect material
misstatements

Types of Audit Procedures
• Inspection of Documents or Records
– Vouching
– Tracing

Types of Audit Procedures
• Inspection of Tangible Assets
• Observation
• Inquiry
• Confirmation

Types of Audit Procedures
• Recalculation
• Reperformance
• Analytical Procedures
• Computer-Assisted Audit Techniques

Four Decisions About Audit
Procedures
• Staffing and Supervising the Audit
• Nature of Audit Procedures
• Timing of Audit Procedures
• Extent of Audit Procedures

Documenting Audit Decisions

and Audit Evidence
• Audit Program
– Recommended by GAAS
– Documents decisions

• Working Papers
– Documents audit decisions
– Documents audit evidence obtained

Types of Working Papers
• Working Trial Balance
• Schedules and Analyses
• Audit Memoranda and Corroborating
Information

• Adjusting and Reclassifying Entries

Preparing Working Papers
• Heading
• Index Number

• Cross-Referencing
• Tick Marks
• Signatures and Dates

Working Paper Example

Reviewing Working Papers
• Scope of Work Performed
• Evidence and Findings Obtained
• Audit Judgment Exercised
• Conclusions Reached by the Auditor

Working Paper Files
• Permanent File

• Current File

• Ownership and Custody

Study Break

4. ________ involves selecting entries in the
accounting records and inspecting the
documentation that served as the basis
for the entries.
A. Vouching
B. Tracing
C. Observation
D. Inquiry
A. Vouching

Study Break
5. These decisions involve determining
whether the procedures will be
performed at an interim date or at
fiscal year-end.
A. Staffing and Supervision
B. Nature of Audit Tests
C. Timing of Audit Tests
D. Extent of Audit Tests
C. Timing of Audit Tests

Study Break
6. This working paper file contains data
that are expected to be useful to the
auditor in future engagements with the
client.
A. Permanent file
B. Current file
C. Daily file
D. Annual file
A. Permanent file