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Audit procedures

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Audit procedures

  1. 1. Audit Procedures for Obtaining Audit Evidence<br />Matt Lynch<br />Hanjo Mohr<br />Kelsey White<br />
  2. 2. Categories of Evidence<br />AU 326.27-28<br />Inspection of records or documents<br />AU 326.29<br />Inspections of tangible assets <br />AU 326.30<br />Observation <br />AU 326.31-36<br />Inquiry<br />AU 326.37<br />Confirmation<br />AU 326.38<br />Recalculation<br />AU 326.39<br />Reperformance<br />AU 326.40-41<br />Analytical Procedures<br />AU 326.42<br />Scanning<br />
  3. 3. Inspection of Records or Documents<br />Internal or external documents in paper form, electronic form, or other media forms<br />Two issues:<br /> Reliability of records or documents<br />Internal & external documents <br /> Relationship to specific assertions <br />Occurrence and completeness assertions<br />Direction of testing <br />
  4. 4. Direction of Testing<br />Vouching – tests occurrence<br />Selecting item from journals then examining underlying source document<br />Tracing – tests completeness<br />Selecting source document and following it to the journals <br />
  5. 5. Inspection of Tangible Assets<br />Physical examination <br /><ul><li>Inspecting or counting tangible assets</li></ul>Provides assurance of existence <br /><ul><li>Identifies obsolete items</li></li></ul><li>Observation<br />Procedures performed by others<br /> Processes that do not leave an audit trial<br />Ex: entities personnel & control activities <br />Limitations: <br />Point in time <br />Unreliable <br />
  6. 6. Questions<br />Which primary assertion is satisfied when an auditor observes the client's physical count of inventory?<br />What is an example of audit evidence with low reliability?<br />Which audit evidence category makes up the bulk of the evidence gathered by the auditor?<br />
  7. 7. Inquiry<br />Consists of seeking information of knowledgeable persons throughout the entity or outside the entity<br />Helps to identify the outside environment<br />An inquiry alone does not provide sufficient audit evidence<br />Can be very informal<br />
  8. 8. Confirmation<br />The process of obtaining information directly from a third party <br />Must be written requests from the third party<br />Helps provide reliable evidence of existing assets<br />Example: an auditor can send a confirmation to a consignee to verify that a client’s inventory has been cosigned<br />
  9. 9. Recalculation<br />Checking the mathematical accuracy of documents or records<br />May use electronic file forms<br />Includes reconciling subsidiary ledgers and testing postings from the journal ledgers<br />Since the auditor calculates this evidence it is viewed as reliable<br />
  10. 10. Questions<br />What are some key differences between inquiry and confirmation?<br />Why is recalculation considered to be a highly reliable aspect of an audit?<br />Why would the auditor do an inquiry if the information is not considered reliable?<br />
  11. 11. Reperformance<br />Definition in AU 326.39: “Reperformance is the auditor's independent execution of procedures or controls that were originally performed as part of the entity's internal control, either manually or through the use of CAATs*, …”<br />Example:reperformingthe aging of accounts receivable<br />Highly reliable audit procedure since the independent auditor creates the evidence <br />* Computer –Assisted Audit Techniques<br />
  12. 12. Analytical Procedures<br />Definition in SAS No. 56: “For the purposes of generally accepted auditing standards, the term analytical procedures means evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data.”<br />Auditor compares special data with the financial data and attempts to gather evidence by examining the plausiblity of the results<br />Examples: <br />Comparing revenue and costs of materials of different financial years<br />Comparing personnel costs and the number of employees of different financial years<br />
  13. 13. Analytical Procedures<br />Reliabilityof analytical procedures depends on:<br />The availabilty andreliability ofthe data used<br />The plausbility and predictability ofthe relationship<br />The precision of the expectation and the rigor of the investigation<br />One of the most important audit procedures<br />Offers the possibility toretreive evidence without muchwork (efficiency)<br />
  14. 14. Scanning<br />Special analytical procedure (AU 326.41)<br />Review of accounting data to find significant or unusual items (manually or through use of CAATs)<br />Review:<br />Accountbalances<br />Transaction lists <br />Subsidiary ledgers<br />General ledger control accounts<br />Adjusting entries<br />Suspense accounts<br />Etc.<br />Scanning is unreliable; highly experiencedauditornecessary<br />
  15. 15. Reliability of the Types of Evidence<br />Hierarchy of Reliability (table 4-6)<br />
  16. 16. Questions<br />Why is reperformance especially helpful to gather evidence?<br />Why are analytical procedures important for the advanced audit? <br />Whyshould scanning as an audit procedure beused in combinationwith other audit procedures?<br />

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