Audit procedures

Audit procedures

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  Audit Procedures forObtaining Audit EvidenceMatt LynchHanjo MohrKelsey White
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  Categories of EvidenceAU326.27-28Inspection of records or documentsAU 326.29Inspections of tangible assets AU 326.30Observation AU 326.31-36InquiryAU 326.37ConfirmationAU 326.38RecalculationAU 326.39ReperformanceAU 326.40-41Analytical ProceduresAU 326.42Scanning
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  Inspection of Recordsor DocumentsInternal or external documents in paper form, electronic form, or other media formsTwo issues: Reliability of records or documentsInternal & external documents Relationship to specific assertions Occurrence and completeness assertionsDirection of testing
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  Direction of TestingVouching– tests occurrenceSelecting item from journals then examining underlying source documentTracing – tests completenessSelecting source document and following it to the journals
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  Inspection of TangibleAssetsPhysical examination Inspecting or counting tangible assetsProvides assurance of existence Identifies obsolete itemsObservationProcedures performed by others Processes that do not leave an audit trialEx: entities personnel & control activities Limitations: Point in time Unreliable
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  QuestionsWhich primary assertionis satisfied when an auditor observes the client's physical count of inventory?What is an example of audit evidence with low reliability?Which audit evidence category makes up the bulk of the evidence gathered by the auditor?
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  InquiryConsists of seekinginformation of knowledgeable persons throughout the entity or outside the entityHelps to identify the outside environmentAn inquiry alone does not provide sufficient audit evidenceCan be very informal
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  ConfirmationThe process ofobtaining information directly from a third party Must be written requests from the third partyHelps provide reliable evidence of existing assetsExample: an auditor can send a confirmation to a consignee to verify that a client’s inventory has been cosigned
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  RecalculationChecking the mathematicalaccuracy of documents or recordsMay use electronic file formsIncludes reconciling subsidiary ledgers and testing postings from the journal ledgersSince the auditor calculates this evidence it is viewed as reliable
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  QuestionsWhat are somekey differences between inquiry and confirmation?Why is recalculation considered to be a highly reliable aspect of an audit?Why would the auditor do an inquiry if the information is not considered reliable?
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  ReperformanceDefinition in AU326.39: “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*, …”Example:reperformingthe aging of accounts receivableHighly reliable audit procedure since the independent auditor creates the evidence * Computer –Assisted Audit Techniques
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  Analytical ProceduresDefinition inSAS 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.”Auditor compares special data with the financial data and attempts to gather evidence by examining the plausiblity of the resultsExamples: Comparing revenue and costs of materials of different financial yearsComparing personnel costs and the number of employees of different financial years
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  Analytical ProceduresReliabilityof analyticalprocedures depends on:The availabilty andreliability ofthe data usedThe plausbility and predictability ofthe relationshipThe precision of the expectation and the rigor of the investigationOne of the most important audit proceduresOffers the possibility toretreive evidence without muchwork (efficiency)
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  ScanningSpecial analytical procedure(AU 326.41)Review of accounting data to find significant or unusual items (manually or through use of CAATs)Review:AccountbalancesTransaction lists Subsidiary ledgersGeneral ledger control accountsAdjusting entriesSuspense accountsEtc.Scanning is unreliable; highly experiencedauditornecessary
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  Reliability of the Types of EvidenceHierarchy of Reliability (table 4-6)
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  QuestionsWhy is reperformanceespecially helpful to gather evidence?Why are analytical procedures important for the advanced audit? Whyshould scanning as an audit procedure beused in combinationwith other audit procedures?