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Women Leather Multiple Shoulder Bluepink Dissa Bag Hard Handbags Q0935 Pockets Chapter 5 - Audit objectives and evidence

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Women Hard Multiple Bag Handbags Shoulder Q0935 Leather Bluepink Dissa Pockets Bag Handbags Hard Multiple Women Bluepink Dissa Pockets Leather Q0935 Shoulder The key concepts of this chapter:

• Audit assertions - what the auditor gathers evidence to support.
• Audit evidence - it must be sufficient and competent.
• Q0935 Dissa Hard Handbags Bluepink Leather Pockets Bag Multiple Shoulder Women Audit procedures - how the auditor gathers the evidence.

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Dissa Hard Q0935 Handbags Shoulder Women Leather Multiple Bluepink Bag Pockets The Concept of Audit Assertions

• When management prepares the financial statements, they make five assertions about each line in the financial statements.

• For each line in the financial statements, the auditor's objective is to be sure that there are no material misstatements in these assertions.

The 5 assertions are

• Existence or occurrence

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• Completeness

• Rights and obligations

• Valuation or Allocation

• Presentation and disclosure

  Note that each line in the financial statements contains all assertions. However, the risk of misstatement for each assertion will vary according to the type of account. The auditor is more concerned about the higher risk assertions. For example, in general:

  • Existence is a concern when auditing assets.
  • Completeness is a concern when auditing liabilities.
  • Occurrence is a concern when auditing sales.
  • Completeness is a concern when auditing expenses.

  Each assertion will be re-written as specific objectives. For example, see p. 149.

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Audit Evidence

To be sure that their are no material misstatements, the auditor gathers evidence. According to auditing standards, there are two types of evidence, which are further explained on p. 150, Figure 5-2.

• Underlying Accounting Data
• Corroborating Information

How much evidence does the auditor need? Auditing standards are very clear on this. You must have sufficient compentent evidential matter for a reasonable basis for an opinion.

• What is sufficient? Sufficient means enough. It is defined in terms of the population's characteristics. As an assertion becomes more ________, the auditor needs more evidence.
  • material
  • risky, ie, more prone to misstatement

• What is competent? Several characteristics are used to evaluate compentency:
  • Relevant - Competent evidence must relate to the auditor's objective.
    • Counting cash is very relevant for testing the existence of cash.
    • Handbags Women Bag Shoulder Leather Pockets Q0935 Multiple Bluepink Dissa Hard Counting cash is not relevant for determining if cash's presentation is OK.
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  • Source - Consider the source of the evidence. Compentent evidence comes from:
    • independent sources outside the client.
    • a system with good internal control.
    • through the auditor's direct personal knowledge.
    • For example, see Figure 5-4, page 158.

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  • Timeliness - evidence relates to the balance sheet date. For example:
    • Timely evidence: The auditor observes the client counting inventory on the balance sheet date.
    • Not so timely: The client counts the inventory 1 month before the balance sheet date. This requires additional procedures because the auditor must test the changes in the inventory balance between the count date and the balance sheet date.

  • Objectivity - competent evidence is objective rather than subjective. For example:
    • Dissa Shoulder Handbags Pockets Women Multiple Q0935 Hard Bag Bluepink Leather Objective: Observation of physical assets verifies existence.
    • Subjective: Opinion of credit manager about collectibility of accounts receivable. This relates to valuation.

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• What is reasonable basis? - Auditors do not have to be 100% certain there are no material misstatements. You might say that you have a reasonable basis for an opinion if another prudent practioner would agree that there is less than a 5% chance that there is an undetected material misstatement.

Audit Procedures

Audits are conducted in various phases. In each phase, certain procedures are often used.

Obtain understanding of internal control

For each audit done in accordance with GAAS, the auditor must obtain an understanding of internal control. The appropriate procedures are:
• Make inquiries.
• Leather Bag Handbags Hard Women Pockets Q0935 Shoulder Bluepink Dissa Multiple Inspect manuals and other documentation.
• Observe the client.

Tests of controls

The auditor may decide to test controls. If the tests show that the client's controls are effective at preventing and detecting errors, the auditor has obtained some evidence that there is a reasonable basis for issuing a report that there are no misstatements in the financial statements. How to test controls:
• Inquiries, inspections, and observations.
• Reperformance of client's activities.

Substantive tests

Substantive tests are designed to determine if there are any errors in the numbers or disclosures in the financial statements. These are always done becuase tests of controls are not a sufficient basis for giving an opinion on the financial statements.
• Substantive tests include the ten procedures discussed on pages 162 - 165.

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