Bus 426 - Chapter 6

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Business Administration
BUS 426
Michael Favere- Marchesi

Chapter 6 -Audit Evidence  Audit Program: Detailed instructions for the entire collection of evidence for an audit area or an entire audit, an audit program in every component of the audit (ex: Sales and collections)   Audit Evidence Decisions  Identifying risks by assertion: Which account might be at risk  Audit procedures: What audit type of collection to use for evidence  Sample size  Items to select  Timing   Persuasiveness of Evidence: The degree to which the auditor is convinced that the evidence supports the audit opinion, the 3 determinants are sufficiency, appropriateness and timeliness, which must be all be present to be persuasive… Should find evidence at a reasonable cost  Sufficiency: The quantity of evidence, appropriate sample size  Appropriateness: The degree to which evidence can be considered relevant and reliable o Relevant Evidence: The relationship of the evidence to the audit objective being tested o Reliability of Evidence: Evidence is reliable when it is obtained from:  The auditor’s direct knowledge  An independent provider  A client with effective internal controls  Qualified providers such as law firms and banks  Objective sources: (Not subjective evidence) Ex: bank confirmations, physical count of inventory  Consistent and multiple sources  Timeliness: The timing of audit evidence in relation to the period covered by the audit  Types of Audit Evidence  Inspection: Physical count of a tangible asset or inspection of a document  Observation: Use of senses to assess certain activities  Inquiry of the Client: Obtaining written or oral information from the client for the audit  Confirmation: Auditor’s receipt of a written or oral response from an independent third party verifying the accuracy of the information Chapter 6 Audit Evidence  Recalculation: Repeating or checking the math accuracy of calculations completed by the client  Reperformance or Parallel simulation: Redoing procedures and internal controls of the client by the auditor o Relies on the use of Computer-assisted Audit Tests (CAAT) o Test Data: The use of fictitious transactions to determine whether client programs are
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