6 - 1 ©2003 prentice hall business publishing, essentials of auditing 1/e, arens/elder/beasley...
TRANSCRIPT
6 - 1©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Audit Evidence
Chapter 6
6 - 2©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Learning Objective 1
Contrast audit evidence
with evidence used by
other professions.
6 - 3©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Nature of Evidence
The use of evidence isnot unique to auditors.
Evidence is also usedby scientists, lawyers,
and historians.
6 - 4©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Learning Objective 2
Identify the four audit evidence
decisions that are needed to
create an audit program.
6 - 5©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
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
6 - 6©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Audit Program
It includes a list of the audit proceduresthe auditor considers necessary.
Most auditors use computers to facilitatethe preparation of audit programs.
6 - 7©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Learning Objective 3
Specify the characteristics
that determine the
persuasiveness
of evidence.
6 - 8©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Persuasiveness of Evidence
Competence
Sufficiency
Combined effect
Persuasiveness and cost
6 - 9©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Competence
Relevance
Independence of provider
Effectiveness of internal controls
Auditor’s direct knowledge
Qualifications of individuals
Degree of objectivity
Timeliness
6 - 10©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Learning Objective 4
Identify and apply the
seven types of evidence
used in auditing.
6 - 11©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Relationships
Auditingstandards
Qualificationsand conduct
ReportingEvidence
accumulation
Types ofevidence
Broadguidelines
Broadcategories
6 - 12©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Relationships
Types ofevidence
Auditprocedures
Samplesize
Timingof tests
Items toselect
Specificinstructions
6 - 13©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Types of Audit Evidence
1. Physical examination
3. Documentation
5. Inquiries of the client
6. Reperformance
2. Confirmation
4. Analytical procedures
7. Observation
6 - 14©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
InformationOften Confirmed
Information SourceAssetsCash in bank BankAccounts receivable CustomerNotes receivable MakerOwned inventory out on consignment ConsigneeInventory held in public warehouses WarehouseCash surrender value of life insurance Insurance co.
6 - 15©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
InformationOften Confirmed
Information SourceLiabilitiesAccounts payable CreditorNotes payable LenderAdvances from customers CustomerMortgages payable MortgagorBonds payable Bondholder
6 - 16©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
InformationOften Confirmed
Information SourceOwners’ EquityShares outstanding Registrar and
transfer agent
6 - 17©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
InformationOften Confirmed
Information SourceOther InformationInsurance coverage Insurance companyContingent liabilities Bank, lender, and
client’s counselBond indenture agreements BondholderCollateral held by creditors Creditor
6 - 18©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Criteria to DetermineCompetence
Type ofevidence
Independenceof provider
Effectiveness ofclient’s
internal controls
Auditor’sdirect
knowledge
Qualificationsof provider
Objectivityof evidence
6 - 19©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Terms and Types of Evidence
Terms Types of Evidence
Examine Documentation
Scan Analytical procedures
Read Documentation
Analytical proceduresCompute
Recompute Reperformance
Foot Reperformance
6 - 20©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Terms and Types of Evidence
Terms Types of Evidence
Trace Documentation
Compare Documentation
Count Physical examination
ObservationObserve
Inquire Inquiries of client
Vouch Documentation
6 - 21©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Learning Objective 5
Understand the purposes
of audit documentation.
6 - 22©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Audit Documentation
Purposes of audit documentation
Ownership of audit files
Confidentiality of audit files
6 - 23©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Learning Objective 6
Prepare organized
audit documentation.
6 - 24©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Audit File Contentsand Organization
Robinson AssociatesTrial Balance
12/31/2003
Cash $165,237Accounts Receivable 275,050Prepaid Insurance 37,795Interest Receivable 20,493
FinancialStatements andAudit Report
WorkingTrial Balance
AdjustingJournal Entries
ContingentLiabilities
Operations
Liabilities and Equity
Assets
AnalyticalProcedures
Test of Controls& Substantive
TOT
InternalControl
GeneralInformation
AuditPrograms
PermanentFiles
6 - 25©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Permanent Files
These files are intended to containdata of a historical or continuing
nature pertinent to the current audit.
6 - 26©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Current Files
Audit program
General information
Working trial balance
Adjusting and reclassification entries
Supporting schedules
6 - 27©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Learning Objective 7
Describe how e-commerce
affects audit evidence and
audit documentation.
6 - 28©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Effect of E-commerce
Audit evidence is increasingly in electronic form.
Auditors use computers to readand examine evidence.
Software programs are typically Windows-based.
6 - 29©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley
Summary of Audit Documentation
Audit documentation is an essentialpart of every audit.
Audit documentation provides a record of the evidence accumulated and the result of the tests.
CPA firms make sure that audit documentationis properly prepared and is appropriate.