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audit evidence

Audit procedures refer to detailed instructions for CPAs on how to analyze certain types of audit evidence to be obtained at a certain time during the audit process. This mind map introduces the nature of audit evidence, audit procedures, confirmation, analysis procedures, etc. , hope it helps you!

Edited at 2023-10-31 19:51:22

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Outline

Chapter 2 Types, methods and procedures of audits
- 21
Mason·Carter

audit evidence

Nature of audit evidence

The concept of audit evidence

Audit bureau refers to all information used by certified public accountants to draw audit conclusions and form audit opinions.

Information contained in accounting records

Accounting records mainly include original vouchers, accounting vouchers, general ledgers and detailed ledgers, other adjustments to financial statements not reflected in accounting vouchers, as well as manual calculation sheets and electronic calculation sheets to support cost allocation, calculation, reconciliation and disclosure. data sheet

Other information

Minutes of meetings of the audited unit, internal control manuals, responses to confirmation letters, analysts’ reports, comparative data with competitors, etc., information obtained through audit procedures such as inquiries, observations and inspections, such as obtaining inventory existence by inspecting inventory evidence, etc., as well as information compiled or obtained by oneself that can lead to conclusions through reasonable inferences

Sufficiency and appropriateness of audit evidence

Evaluate the adequacy and appropriateness of audit evidence

Sufficiency of audit evidence

The sufficiency of audit evidence is a measure of the quantity of audit evidence and is mainly related to the sample size determined by the CPA.

The higher the assessed risk of material misstatement, the more audit evidence may be required; the higher the quality of the audit evidence, the less audit evidence may be required.

Deficiencies in its quality may not be remedied simply by obtaining more audit evidence.

Suitability of audit evidence

Relevance and reliability are the core contents of the appropriateness of audit evidence

Relevance of audit evidence

Relevance is the logical link between information used as audit evidence and relevant assertions considered for the purpose of the audit procedures.

Specific audit procedures may only provide relevant audit evidence for certain assertions but not for other assertions.

Reliability of audit evidence

Audit evidence obtained from external independent sources

When internal controls are effective

Audit evidence obtained directly

Audit evidence in the form of documents and records

Audit evidence obtained from original documents

Special considerations when evaluating adequacy and appropriateness

Considerations for the reliability of documentation

Does not involve identifying the authenticity of documents and records

Document records may be forged, further investigation

Considerations when using information generated by the auditee

Completeness and accuracy

Considerations when the evidence is conflicting

If audit evidence obtained from different sources or audit evidence of different natures for a certain assertion can corroborate each other, the audit evidence related to the assertion will be more convincing.

Inconsistencies in audit evidence indicate that an item of audit evidence may be unreliable

Cost considerations in obtaining audit evidence

Inventory supervision is an irreplaceable audit procedure for formal inventory confirmation.

Audit procedures

The concept and role of audit procedures

Audit procedures refer to the detailed instructions given by the CPA on how to analyze certain types of audit evidence to be obtained at a certain time during the audit process.

What kind; how big; which; when

Types of audit procedures

examine

Review of records and documents in paper, electronic or other media and physical review of assets

observe

The CPA looks at the activities that relevant persons are engaged in or the procedures that are being implemented

limitation

Limited to the time the observation occurs

ask

The CPA obtains information orally or in writing from informed persons inside or outside the audited entity.

Inquiries are used extensively throughout the audit process as a supplement to other audit procedures

Inquiries by themselves are not sufficient to obtain adequate and appropriate procedures

Letter of confirmation

CPA obtains written response from third party

specific account balance

Confirmation of agreement and transaction terms

Obtain actual evidence that certain conditions do not exist

recalculate

CPAs perform accuracy checks on data in records or documents

Re-run

The CPA independently performs procedures or controls that are originally part of the internal control of the audited entity.

analysis program

CPAs evaluate financial information by analyzing the relationships between different financial data and between financial data and non-financial data.

Letter of confirmation

Correspondence decision

Assessed risk of material misstatement at the identification level

The higher the risk of misstatement, the higher the requirements.

The lower the risk of misstatement, the lower the requirements.

There is no need to directly confirm the balance and terms of the loan to the creditor again.

A certain risk is a special risk, and it is necessary to consider whether to reduce the risk of inspection through confirmation of specific matters.

Determinations targeted by the corroboration procedure

The corroborative power of corroboration is different for different determinations.

Confirmation of accounts receivable may be of existence, rights and obligations

Accounts Payable Integrity

Implement audit procedures other than confirmation

Still need to consider

The respondent’s understanding of the correspondence matters

The expected ability or willingness of the person being inquired to respond to the inquiry letter

Expected objectivity of person being questioned

Contents of correspondence confirmation

Object of confirmation

Bank savings

Correspondence procedures should be implemented

Unless immaterial and the risk of material misstatement is low

accounts receivable

Unless it is not important or the correspondence is likely to be invalid

Reasons need to be given for non-confirmation

The scope of implementation of the corroboration procedure

specific items

Large amounts, long account ages, frequent transactions, small ending balances, major related party transactions, major or abnormal transactions, and possible fraud or erroneous transactions

Time for confirmation

Usually the balance sheet date is the deadline, and confirmation will be implemented within an appropriate time after the balance sheet date.

If the risk assessment of material misstatement is low, an appropriate date before the balance sheet date can be selected as the closing date.

What to do when management requests not to implement letter of confirmation

Consider whether it is reasonable and obtain audit evidence to support it.

Unreasonable, the scope of the audit is deemed to be limited.

Be professionally skeptical

Whether management is honest and whether there may be major fraud or errors

Design of confirmation letter

General requirements for design inquiry letters

Factors to consider when designing a confirmation letter

positive and negative

Reply rate

Misstatement

accuracy

non-conventional contract

informed third party

Authorization from the management of the audited entity

The recipient of the letter may be more willing to reply

Positive corroboration and negative corroboration

positive

Must be able to reply

is it right or not

The disadvantage is that it is restored without verification.

Inquiry letter

Low response rate

negative

The person being inquired will only respond to the letter if he or she disagrees with the information listed in the inquiry letter.

The audit evidence provided by a reply letter that has not received a negative confirmation letter is far less convincing than the audit procedures provided by a reply letter that itself is a confirmation letter.

The negative form can be used in the following situations:

Risk assessment is low

Small account with large balance

No large number of errors expected

There is no reason to believe that the person being inquired about does not take the corroboration seriously.

Implementation and evaluation of corroboration

Controlling the confirmation process

Issued directly by CPA

Information remains consistent with bank statements

return address

What to do when a positive confirmation letter is not received

Evaluate the reliability of confirmation

Handling of discrepancies

Signs of fraud risks that need to be paid attention to when implementing letter confirmation and relative measures to be taken

analysis program

Purpose of Analysis Program

Analytical procedures refer to CPAs evaluating financial information by analyzing the inherent relationships between different financial data and between financial data and non-financial data.

When necessary, investigate the identified fluctuations or relationships that are inconsistent with other information or that are significantly different from expected values.

used as a risk assessment process

used as substantive proceedings

Conduct a general review at or near the end of the audit

Analytical procedures are not suitable for control test procedures

Internal controls do not involve large amounts of data

used as a risk assessment process

The use of analytical procedures at this stage is mandatory

It should be noted that the CPA no longer needs to understand the financial reports applicable to the audited entity and its environment. Analytical procedures must be implemented when preparing each aspect of the basic and internal control system elements.

used as substantive proceedings

When the use of analytical procedures is more effective than testing of details in reducing assertion-level inspection risks to an acceptable level, the CPA may consider testing of details alone or in combination with

Compared with detailed tests, the accuracy that substantive analysis procedures can express may be subject to various limitations, and the evidence provided is largely indirect evidence with relatively weak probative power.

Source, comparability, nature and relevance, and its controls related to the preparation of information

expected

acceptable difference

for overall review

Purpose

Determine whether the financial statements as a whole are consistent with expectations of the entity being audited

The CPA should use analytical procedures at this stage

floating theme