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Chapter 9

BU477 Chapter Notes - Chapter 9: Audit Evidence, Internal Control, Test Data

Course Code
Helena Keirstead

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Chapter 9: Audit Evidence
Audit Evidence Decisions:
Identifying risks helps auditor determine appropriate types and amount of
evidence needed to satisfy the judgement of stated f/s
Auditor decisions on evidence accumulation is broken down
o Which risks could result in a risk of material misstatement at the assertion
o Which audit procedures to use
o What sample size to select for a given procedure
o Which particular items to selection from population
o When to perform the procedures
Identifying Risks by Assertion:
Look for potential risk for material misstatement
Knowledge of industry, business and operating procedures will help complete
Audit Procedures:
Detailed instruction for collection of particular type of audit evidence that is
obtained during audit
Need to be detailed and specific
What is being done, how it is being done and when
Sample Size:
The number of items sampled is made by auditor
Items to Select:
After sample size determined must figure out what needs to be tested
Sampling method and size would need to be assessed by audit manager or
Select a week and examine first n amounts
Select n amount of the largest items key items
Select randomly
Select that will have most likely error
Can be before accounting period or after it ends
Normally completed 1-3 months after year end
Identify assertion
Number of items to select
Sample size
Audit Program:
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Detailed instructions for entire collection of evidence for an audit
Audit program for each part of the audit A/R… sales
Persuasiveness of Evidence:
GAAS requires obtaining appropriate audit evidence
Determinants of persuasiveness of evidence
o Appropriateness quality and relevance
o Sufficiency enough evidence
o Timeliness covering right period
o Quality of evidence
o Degree to which evidence considered relevant and reliable
o More appropriate the less evidence needed
o Only be approved by selecting audit procedures to improve relevance
can’t improve by increasing samples
o Audit objective the auditor is testing
o You want to make sure you are testing relevance
o Example:
If client fails to bill customer for shipments
Want to test to compare sample of shipping documents related to
duplicate sales invoices to determine if shipment has been billed
Increases through:
Auditor’s Direct Knowledge:
o Evidence obtained directly from auditor through observation,
reperformance and inspection
o More better than getting stuff indirectly
Independence of Provider:
o Evidence obtained from source provider outside the entity more reliable
o External party that is arm’s length
o Independence
Effectiveness of Client’s Internal Controls:
o More reliable when the client’s internal controls are reliable
o When looking at internal controls look at management override and
pervasive impact of management integrity
Qualifications of Individuals Providing the Information:
o Auditor needs to consider qualifications of provider at each source of
o Information reliable if it comes from a qualified individual
Degree of Objectivity:
o Objective evidence is more reliable than items that involve judgement or
are subjective
Consistency from Multiple Sources:
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