main types of audit evidence advanced auditing chapter 7 dr. mohamed a. hamada
TRANSCRIPT
![Page 1: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/1.jpg)
Main Types of Audit Evidence
Advanced Auditing
Chapter 7
Dr. Mohamed A. Hamada
![Page 2: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/2.jpg)
Learning Objectives
• Audit evidence are variant of other evidence that used by other professions.
• Identify the four audit evidence decisions.• Explain the persuasive of audit evidence • Explain the main types of audit evidence
![Page 3: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/3.jpg)
Types of Audit Evidence
1. Physical examination2. Confirmation3. Documentation4. Analytical procedures5. Inquiries of the client6. Re-calculation7. Re-performance8. Observation
![Page 4: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/4.jpg)
Physical Examination
It is the inspection or count by theauditor of a tangible asset.
This type of evidence is most oftenassociated with inventory and cash.
Physical examination is a direct means of verifying that an asset actually exists
![Page 5: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/5.jpg)
Confirmation
• Confirmation describes the receipt of a direct written response from a third party verifying the accuracy of information that was requested by the auditor.
• Because confirmations come from sources independent of the client, they are a highly regarded and often-used type of evidence
![Page 6: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/6.jpg)
auditor
client’s customer
•Confirmation - receipt of a written or oral response from an independent third party at the auditor’s request.
• A sample of accounts receivable should be confirmed by the auditor.
very appropriate evidence!
Canada 46
![Page 7: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/7.jpg)
Documentation
It is the auditor’s inspection of theclient’s documents and records.
Internaldocuments
Externaldocuments
![Page 8: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/8.jpg)
- Documentation (vouching) - auditor examination of client documents and records
![Page 9: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/9.jpg)
External documents are usually on the client’s premises but were either prepared by a third party or processed by a third party (more persuasive).
Internal documents have been prepared by the client and have not left the client’s premises (less persuasive).
the difference between internal and external documents?
![Page 10: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/10.jpg)
- Documentation (vouching) - auditor examination of client documents and records
- Physical examination - inspection or count by the auditor of a tangible asset
the difference between physicalexamination and documentation
![Page 11: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/11.jpg)
Example:
the client often retains a customer order, a shipping document, and a duplicate sales invoice for each sales transaction.These documents are useful evidence for the auditor to verify the accuracy of the client’s records for sales transactions.
![Page 12: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/12.jpg)
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 misstatementsin the financial statements
Reduce detailed audit tests
For example, an auditor may compare the gross margin percent in the current year with the preceding year’s.
Use comparisons and relationships to assess whether account balances or other data appear reasonable compared to the auditor’s expectations
![Page 13: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/13.jpg)
- industry comparisons
Types of Analytical Procedures
How do theclient’s financial ratios
compare with thoseof the industry?
![Page 14: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/14.jpg)
- comparisons with prior years
AceCompany
2003financial
statements
Conclusions from a 2-year analysis
Types of Analytical Procedures
AceCompany
2004financial
statements
![Page 15: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/15.jpg)
Account can be calculated from Sales commissions sales Depreciation expense fixed assets Interest expense notes/bonds payable
Types of Analytical Procedures- Comparisons with auditor-determined expected results, examples:
![Page 16: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/16.jpg)
Inquiries of the Client
It is the obtaining of written or oral information from the client in response to questions from the auditor.
![Page 17: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/17.jpg)
Recalculation
•Rechecking client calculations consists of testing the client’s arithmetical accuracy and includes such procedures as extending sales invoices and inventory
•checking the calculation of depreciation expense and prepaid expenses
•It involves rechecking a sample of calculations made by the client.
![Page 18: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/18.jpg)
Re-performance
Re-performance is the auditor’s independent tests of client accounting procedures or controls that were originally done as part of the entity’s accounting and internal control system.Ex: the cycle of sales recording process, procedures of payrolls calculation
![Page 19: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/19.jpg)
Observation
It is the use of the senses to assess client activities.
The auditor may tour the plant to obtain a generalimpression of the client’s facilities.
![Page 20: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/20.jpg)
Terms and Types of Evidence
Terms Type of Evidence
ExamineScanReadComputeRe-computeAssessTraceCompareCountObserveInquireVouch
DocumentationAnalytical proceduresDocumentationAnalytical proceduresRecalculationRecalculationDocumentation/Re-performanceDocumentation/Analytical proceduresPhysical examinationObservationInquiries of clientDocumentation
![Page 21: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/21.jpg)
Audit Documentation
Audit documentation is the principal recordof auditing procedures applied, evidenceobtained, and conclusions reached bythe auditor in the engagement.
![Page 22: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/22.jpg)
Purposes of audit documentation
The overall objective of audit documentation is to aid the auditor in providing reasonable assurance that an adequate audit was conducted in accordance with auditing standards
![Page 23: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/23.jpg)
Learning Objective 7
• Describe how technology affects audit evidence and audit documentation.
![Page 24: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/24.jpg)
Effect of Technology
Audit evidence is increasingly in electronic form
Auditors must evaluate how electronic informationaffects their ability to gather evidence
Auditors use computers to read and examineevidence
Software programs are typically Windows-based
![Page 25: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/25.jpg)
Define the following terms commonly used in audit procedures:1. Examine 2. Scan3. Compute4. Foot5. Compare6. Count7. Vouch
Answer:1. Examine – A reasonably detailed study of a specific document or record to
determine specific facts about it.2. Scan – A detailed examination of a document or record to determine
whether there is something unusual warranting further investigation.3. Compute – A calculation done by the auditor independent of the client.4. Foot – Addition of a column of numbers to determine whether the total is
the same as the client’s.5. Compare – A comparison of information in two different locations.6. Count – A determination of assets on hand at a given time. This is
associated with evidence defined as physical examination.7. Vouch – The use of documents to verify recorded transactions or amounts.
![Page 26: Main Types of Audit Evidence Advanced Auditing Chapter 7 Dr. Mohamed A. Hamada](https://reader036.vdocuments.us/reader036/viewer/2022062321/56649dc95503460f94abee75/html5/thumbnails/26.jpg)
End of Chapter 7