Kế toán, kiểm toán - Chapter four: Audit evidence and audit documentation

Audit Evidence and Audit DocumentationChapter FourRelationship of AuditEvidence to the Audit ReportManagement assertionsabout elements offinancial statementsFinancialstatementsAuditproceduresAuditreportProvide evidence on thefairness of thefinancial statementsAuditor reaches a conclusion based on the evidenceManagement AssertionsAssertions aboutclasses of transactionsand events for theperiod under auditOccurrenceCompletenessAuthorisationAccuracyCut-offClassificationManagement AssertionsAssertions aboutend-of-the-periodaccount balancesExistenceCompletenessValuationand allocationRights andobligationsManagement AssertionsAssertionsabout presentationand disclosureClassification and understandabilityOccurrence andrights and obligationsCompletenessAccuracy and valuationManagement AssertionsAudit ProceduresSpecific actsperformed by the auditorto gather evidence to determineif specific assertions arebeing met.Risk assessment proceduresTest of controlsSubstantiveproceduresAudit ProceduresA set of audit procedures prepared to testassertions for a component of the financial statements is referred to as an audit plan.Audit EvidenceAll the information, from whatever source, usedby the auditor in arriving atthe conclusions on which theaudit opinion is based.The Concepts of AuditEvidenceNature of audit evidenceSufficiency and appropriateness of audit evidenceEvaluation of audit evidenceNature of Audit EvidenceRecords ofinitial entries andsupporting recordsInvoicesContractsGeneraland subsidiaryledgersAdjustmentsto financialstatementsWorksheetsSpreadsheetssupporting costallocationsOthercomputations,reconciliations, anddisclosuresSufficiency ofAudit EvidenceSufficiency is a measure ofthe quantity of audit evidence.Greater risk ofmisstatement requiresa higher quantityof audit evidence.Higher quality audit evidence results in a lower quantityof audit evidence.Appropriateness ofAudit EvidenceRelevanceReliabilityKnowledgeable independent source of the evidenceEffectiveness of internal controlAuditor’s direct personal knowledgeDocumentary evidenceOriginal documentsAppropriateness is a measureof the quality of audit evidence.Evaluation of Audit EvidenceProper evaluation of evidencerequires an understanding of the Types of evidence available.Relative reliability of available evidence.An auditor should be thorough in searchingfor evidence and unbiased in its evaluation.Audit Procedures forObtaining Audit EvidenceInspectionof records anddocumentsInspectionof tangibleassetsObservationInquiryConfirmationRecalculationReperformanceAnalyticalproceduresScanningAudit Procedures forObtaining Audit EvidenceInspectionof records anddocumentsEvidence obtained fromexternal documents is morereliable than evidence obtainedfrom internal documents.Journal orLedgerSourceDocumentsVouching(Occurrence)Tracing(Completeness)Audit Procedures forObtaining Audit EvidenceThe process of watching a process or procedure being performed by others.ObservationInspectionof tangibleassetsPhysical examination of a tangible asset.Audit Procedures forObtaining Audit EvidenceIn conducting inquiry, the auditor should: Consider the knowledge, objectivity, experience, responsibility, and qualifications of the person to be questioned. Ask clear, concise, and relevant questions. Use open or closed questions appropriately. Listen actively and effectively. Consider the reactions and responses, then ask follow-up questions. Evaluate the response.InquiryAudit Procedures forObtaining Audit EvidenceConfirmationThe reliability of evidence obtained through confirmations is directly affected by factors such as:The form of the confirmation.Prior experience with the entity.The nature of the information being confirmed.The intended respondent.The process of obtaining a representation of information of an existing condition directly from a third party.Audit Procedures forObtaining Audit EvidenceConfirmationAudit Procedures forObtaining Audit EvidenceDetermining the mathematical accuracy of documents or records.ReperformanceRecalculationThe auditor’s independent execution of procedures or controls that were originally performed as part of the internal control system.Audit Procedures forObtaining Audit EvidenceReview of accounting data to identify significant or unusual items.ScanningAnalyticalproceduresEvaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data.Reliability of Typesof EvidenceAudit DocumentationThe auditor’s principal record of theaudit procedures performed, evidence obtained, and conclusions reached.Provides also the basis for the review and inspection of the quality of the audit work. Content of AuditDocumentationAudit documentation should:Provide a sufficient and appropriate record of the basis for the auditor’s report. Provide evidence that the audit was planned and performed in accordance with ISAs and applicable legal and regulatory requirements. Content of Audit DocumentationAudit documentation should:Include the overall audit strategy and audit plan.Enable an experienced auditor to understand: The nature, timing, extent of the audit procedures performed to comply with ISAs and applicable legal and regulatory requirements. The results of the audit procedures performed and the audit evidence obtained. Significant matters arising during the audit, the conclusions reached thereon, and significant professional judgements made in reaching those conclusions (ISA 230).Content of AuditDocumentationMost audit firms maintainaudit documentation in two types of filesPermanent filesCurrent filesCorporate charter Important contractsChart of accounts Internal control documentationOrganisation chart Terms of stock and bond issuesAccounting manual Prior years’ analytical proceduresContent of Audit DocumentationMost audit firms maintainaudit documentation in two types of filesPermanent filesCurrent filesOverall audit strategy/ Current financial statements/audit report audit plan Adjusting/reclassification journal entriesWorking trial balance Working papers supporting accountsMinutes of meetings Format of AuditDocumentationHeadingIndexing andcross-referencingTick marksClient nameTitle of the working paperClient’s year-end dateNotations that provide a trailfrom financial statements toaudit documents.Notations made next towork paper items indicatingauditor/reviewer actions.Audit DocumentationAudit documentation should be organised sothat audit team members and others can findevidence supporting financial statement accounts.All audit documentation is the property of theauditor, including documents preparedby the client at the auditor’s request.ISQC1 requires audit documentation to be retained ordinarily for minimum five years from the date of the auditor’s report.End of Chapter 4