Beruflich Dokumente
Kultur Dokumente
(Evidence-Gathering and
Documentation)
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Description/Purpose
Risk Assessment
Procedures
Test of Controls
Substantive tests
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Nature of Evidence
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Relationship of Audit
Evidence to Management
Assertions
Audit evidence is gathered as a basis
for expressing an opinion on whether
the assertions of management are fairly
stated.
A given set of procedures may provide
audit evidence that is relevant to certain
assertions, but not others.
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Relationship of Audit
Evidence to Management
Assertions
For
example:
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Sufficiency and
Appropriateness of Evidential
Matter
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Sufficiency
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Appropriateness
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Appropriateness
Relevance
Evidence must affect the auditors ability to
accept or reject a specific financial
statement assertion.
It relates to the timeliness of evidence and
its ability to satisfy the audit objective.
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Appropriateness
Relevance
Evidence obtained is evaluated in terms of
its usefulness either in corroborating or
contradicting an assertion.
Evidence is relevant to the extent that it
serves either of those purposes.
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Appropriateness
Reliability
It is the quality of information that assures
that information is reasonably free from
error and bias and faithfully represents
what it purports to represent.
It is influenced by its source and by its
nature and is dependent on the individual
circumstances under which it is obtained.
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Appropriateness
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Appropriateness
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Appropriateness
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Cost-benefit considerations
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Relationships Among
Assertions, Objectives and
Procedures
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Audit Objectives
Audit Procedures
1. Existence and
Occurrence
1. Obtain schedules of
stockholders equity
accounts and reconcile
to the general ledger
balances.
2. Review authorizations
and terms of stock
issues.
2.Completeness
To determine whether
recorded stockholders
equity accounts reflect all
data that should be
recorded
3. Perform analytical
review procedures
3.Rights and
obligations
4. Review articles of
incorporation and the
related by-laws.
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Audit Procedures
1. Inspection of Records or Documents
This consists of examining records or
documents, whether internal or external,
in paper form, electronic form, or other
media.
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Audit Procedures
2. Inspection of Tangible Assets
This consists of physical examination
of the assets.
This may provide reliable audit
evidence with respect to their existence,
but not necessarily about the entitys
rights and obligations or the valuation of
the assets.
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Audit Procedures
3. Observation
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Audit Procedures
4. Inquiry
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Audit Procedures
5. Recalculation
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Audit Procedures
6. Reperformance
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Audit Procedures
7. Confirmation
It is the process of obtaining and evaluating audit
evidence through the receipt of a written or oral
response from an independent third party.
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Audit Procedures
7. Confirmation
This provides reliable and relevant audit
evidence regarding the existence of the
account as at a certain date. It also provides
audit evidence regarding the operation of
cutoff procedures. However, it does not
ordinarily provide all the necessary evidence
regarding valuation assertion.
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Audit Procedures
7. Confirmation (FORMS)
a. Positive Confirmation
-Asks the respondent to reply in all cases
either by indicating the respondents
agreement with the given information, or by
asking the respondent to fill in information.
-There is a risk that a respondent may reply
without verifying that the information is
correct.
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Audit Procedures
7. Confirmation (FORMS)
a. Positive Confirmation
- Auditor may reduce this risk by not stating
the amount and asking the respondent to fill in
the amount or furnish other information.
-However, this may result in lower response
rates because additional effort is required of
the respondents.
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Audit Procedures
7. Confirmation (FORMS)
b. Negative Confirmation
- Asks the respondent to reply only in the
event of disagreement with the information
provided in the request.
-This provides less reliable audit evidence
than in positive confirmation.
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Audit Procedures
7. Confirmation (FORMS)
b. Negative Confirmation
- When no response is received to the
request, the auditor does not have assurance
that the intended third parties have received
the confirmation requests and verified that the
information therein is correct.
-Accordingly, other substantive procedures
are performed as supplement.
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Audit Procedures
7. Confirmation (FORMS)
b. Negative Confirmation
- This may be used when:
Assessed risk of material misstatement is lower;
A large number of small balances is involved;
A substantial number of errors is not expected;
and
The auditor has no reason to believe that
respondents will disregard these requests.
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Audit Procedures
7. Confirmation
When the auditor seeks to confirm certain
balances or other information, and
management requests the auditor not to do
so, the auditor should consider whether there
are valid ground for such a request and obtain
evidence to support the validity of
managements requests.
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Audit Procedures
7. Confirmation
If the auditor agrees to managements
request not to seek external confirmation
regarding a particular matter, the auditor
should apply alternative audit procedures to
obtain sufficient appropriate audit evidence
regarding that matter.
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Audit Procedures
7. Confirmation
If the auditor does not accept the validity of
managements request and is prevented from
carrying out the confirmations, there has been
a limitation on the scope of the auditors work
and the auditor should consider the possible
impact on the auditors report.
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Audit Procedures
8. Analytical Procedures
Auditors study the plausible relationships
among financial and non-financial data.
These also encompass the investigation
of identified fluctuations and relationships
that are inconsistent with other relevant
information or deviate significantly from
predicted amounts.
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Audit Procedures
When the aforementioned audit
procedures (1 through 8) are used to
detect material misstatements in
account balances, classes of
transactions and disclosures, or to
substantiate the account balances,
these are used as substantive audit
procedures.
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Substantive Procedures
Substantive procedures provide direct
evidence as to the validity of a
transaction or balance in the records.
There are two general types of
substantive tests: test of details of
transactions, balances and
disclosures and analytical review
procedures.
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Analytical Procedures
Data interrelationships (i.e., analytical
procedures) rely on plausible
relationships among financial and nonfinancial data.
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Analytical Procedures
Analytical Procedures are useful in identifying
among other things:
Differences that are not expected.
The absence of differences when they are
expected.
Potential errors, irregularities or illegal acts.
Other unusual or non recurring transactions
or events.
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Analytical Procedures
If a change in one area would naturally lead
to a change in some other area, the
absence of the expected change should
lead to a further study in search of the
cause.
Ex. If commissions paid to sales
representatives rise in one quarter, it would
be reasonable to expect a correspondence
increase in sales revenue.
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Examples
Relationship of marketing expenditure to
sales.
Relationship of interest income to interest
earning assets.
Relationship of interest expense to debt
balances.
Such relationships are assumed to remain
the same unless some unknown condition
causes a change.
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Forms of Analytical
Procedures
Comparisons:
Current period information with similar
information for prior periods.
Current info with budgets or forecasts.
Info for the audited unit with info for other
organisational units.
Information for the audited unit with similar
information for the industry in which the
organisation operates.
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Analytical Procedures
Relationships:
Study of relationships of financial info with
appropriate non financial info e.g. changes
in payroll expense compared to changes in
average number of employees.
Study relationships among elements of
information.
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Analytical Procedures
When analysis uncovers unexpected results,
auditors should undertake further study e.g.
making inquiries to management & applying
other audit procedures. The explanation may
lie in errors, irregularities or illegal acts.
Further study should continue until the
auditor is satisfied that the results have been
sufficiently explained.
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Analytical Procedures
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Analytical Procedures
1.
2.
3.
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Analytical Procedures
1.
2.
3.
LIMITATIONS:
The guidelines for evaluation may be inadequate (e.g.
Why is an industry average good? Why should the ratio
be the same as last year?
It is difficult to determine whether a change is due to a
misstatement or is the result of random changes in the
account.
Analytics present only circumstantial evidence in that a
significant evidence will lead to additional audit
procedures as opposed to direct detection of a
misstatement.
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Test of Details
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Test of Details
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Test of Details
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Effectiveness of
Substantive Tests
Effectiveness of
Substantive Tests
Effectiveness of
Substantive Tests
Effectiveness of
Substantive Tests
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Effectiveness of
Substantive Tests
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Relationship between ST
and TOC
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Selection of Audit
Procedures
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Selection of Audit
Procedure
Will the procedure be cost effective?
E.g. will the time and effort to perform
the procedures far exceed the benefit of
using it?
Will the conclusions reached after using
the procedure be valid?
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Audit Documentation
Audit documentation is the principal record
of auditing procedures applied, evidence
obtained, and conclusions reached by the
auditor.
Audit Evidence is documented in Audit
working papers.
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Key Characteristics of
Work Papers
Complete
Concise
Accurate
Organized
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Characteristics
Completeness:
Each Working paper should be completely
self standing and self explanatory. All
questions must be answered, all points
raised by the reviewer must be cleared and
a logical, well thought-out conclusion
reached for each audit segment.
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Characteristics
Accurate:
High quality work papers include
statements and computations that are
accurate and technically correct.
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Characteristics
Organization:
Work papers should have a logical system
of numbering and a reader friendly layout
so a technically competent person
unfamiliar with the project could understand
the purpose, procedures performed, and
results.
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Characteristics
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a)
b)
c)
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Classification of Work
Papers
Permanent File:
Keeps information that is relevant for
multiple years on recurring engagements.
Current File:
Information relevant for a given audit
project/engagement.
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Classification of Work
Papers
Permanent File:
Copies of the articles of incorporation and bylaws
Major contracts
Engagement letter
Organizational chart
Analyses of long-term accounts such as plant
assets, long-term liabilities and stockholders
accounts
Internal control analyses
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Classification of Work
Papers
Current File:
A copy of the financial statements
Audit program
Working trial balance
Lead schedule
Detailed schedules
Correspondence with other parties such as
lawyers, customers, banks, and management.
(and other confidential letters)
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Back up frequently.
Include the file name in the footer.
Develop an organisation method.
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Ownership of Working
Papers
They are the property of the auditor and the
client has no right to the working paper
prepared by the auditor.
They nay sometimes serve as a reference
source for the client (at the discretion of the
auditor) but they should not be considered
as part or as a substitute for the clients
records.
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Assembly of Working
Papers
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Confidentiality of Working
Papers
Although they are the personal property of
the auditor, working papers can not be
shown to third parties without the clients
permission.
Section 4 of the Philippine Code of
Professional Ethics requires the CPA to
respect the confidentiality of information
obtained during the course of performing
professional services.
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Confidentiality of Working
Papers
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Retention of Working
Papers
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Heading
Each working paper must be properly identified with
such information as the name of the client, type of
working paper, a description of its content, and the date
or period covered by the examination
Indexing
Refers to the use of lettering or numbering systems. This
is to aid in cross-referencing essential information.
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Tick marks
They must include symbols that describe the audit
procedures performed.
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AUDITING ACCOUNTING
ESTIMATES
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AUDITING ACCOUNTING
ESTIMATES
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AUDITING ACCOUNTING
ESTIMATES
The auditor may evaluate the estimates by the
following means:
a. Review and test the process used by
management to develop the estimate. This will
often involve:
. Evaluating data and management assumptions;
. Testing of calculations;
. Comparing prior period estimates with actual
results, and
. Considering management approval procedures.
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AUDITING ACCOUNTING
ESTIMATES
END
QUESTIONS?
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END
THANK YOU!
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