4/28/2015 cpa juan m. garcia merced evidence & documentation cont 4023
TRANSCRIPT
04/18/2304/18/23 CPA JUAN M. GARCIA MERCEDCPA JUAN M. GARCIA MERCED
EVIDENCE & EVIDENCE & DOCUMENTATIONDOCUMENTATION
CONT 4023CONT 4023
Audit Evidence DecisionsAudit Evidence Decisions
1. Which audit procedures to use
2. What sample size to select for a given procedure
3. Which items to select from the population
4. When to perform the procedures (timing)
Audit PlanAudit Plan
It includes a list of the audit proceduresthe auditor considers necessary.
Most auditors use computers to facilitatethe preparation of audit plans.
Sample sizes Items to select Timing of the tests
Audit DocumentationAudit Documentation
Audit documentation is the principal recordof auditing procedures applied, evidenceobtained, and conclusions reached bythe auditor in the engagement.
Audit DocumentationAudit Documentation
Purposes of audit documentation
Ownership of audit files
Confidentiality of audit files
04/18/2304/18/23 CPA JUAN M. GARCIA MERCEDCPA JUAN M. GARCIA MERCED
PurposePurpose Sufficient competent evidential matter Sufficient competent evidential matter
is to be obtained trough inspection, is to be obtained trough inspection, observation, inquiries, and observation, inquiries, and confirmations to afford a reasonable confirmations to afford a reasonable basis for a conclusion.basis for a conclusion.
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AUDIT EVIDENCEAUDIT EVIDENCE Any information that corroborates or Any information that corroborates or
refutes an assertion. Must be:refutes an assertion. Must be:• Competent – relevant and valid (Quality)Competent – relevant and valid (Quality)• Sufficient – QuantitySufficient – Quantity
There is an inverse relationship There is an inverse relationship between competent and sufficiency.between competent and sufficiency.
Six Characteristics of Reliable Six Characteristics of Reliable EvidenceEvidence
1. Independence of provider
2. Effectiveness of internal controls
3. Auditor’s direct knowledge
Six Characteristics of Reliable Six Characteristics of Reliable EvidenceEvidence
4. Qualification of individualsproviding the information
5. Degree of objectivity
6. Timeliness
Persuasiveness and CostPersuasiveness and Cost
In making decisions about evidencefor a given audit, both persuasivenessand cost must be considered.
The auditor’s goal is to obtain asufficient amount of appropriateevidence at the lowest total cost.
Competence of Types of Competence of Types of EvidenceEvidence
Type of evidence Independence of provider Effectiveness of client’s internal controls Auditor’s direct knowledge Qualifications of provider Objectivity of evidence
Types of Audit EvidenceTypes of Audit Evidence
1. Physical examination
2. Confirmation
3. Documentation
4. Analytical procedures
5. Inquiries
6. Recalculation
7. Reperformance
8. Observation
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TYPES OF EVIDENCETYPES OF EVIDENCE Physical evidence- Physical evidence-
provides evidence provides evidence about existence but about existence but needs to be needs to be supplemented by supplemented by other types of other types of evidence.evidence.
ConfirmationConfirmation
Information Source
AssetsAssets
Cash in bankAccounts receivableNotes receivableOwned inventory out on consignmentInventory held in public warehousesCash surrender value of life insurance
BankCustomerMakerConsigneePublic warehouseInsurance company
ConfirmationConfirmation
Information Source
LiabilitiesLiabilities
Accounts payableNotes payableAdvances from customersMortgages payableBonds payable
CreditorLenderCustomerMortgagorBondholder
ConfirmationConfirmation
Information Source
Owners’ EquityOwners’ Equity
Shares outstanding Registrar andtransfer agent
Other InformationOther Information
Insurance coverageContingent liabilities
Bond indenture agreementsCollateral held by creditors
Insurance companyBank, lender, and client’s legal counselBond holderCreditor
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TYPES OF EVIDENCETYPES OF EVIDENCE DocumentsDocuments
• Created outside the company and transmitted Created outside the company and transmitted directly to the internal auditorsdirectly to the internal auditors
• Created outside the company and held by the Created outside the company and held by the companycompany
• Created and held within the companyCreated and held within the company
DocumentationDocumentation
It is the auditor’s inspection of theclient’s documents and records.
Internaldocuments
Externaldocuments
Analytical ProceduresAnalytical Procedures
Understand the client’s industry and business
Assess the entity’s ability to continue as agoing concern
Indicate the presence of possible misstatementsin the financial statements
Reduce detailed audit tests
InquiriesInquiries
It is the obtaining of written or oral information in response to questions from the auditor.
ReperformanceReperformance
It is the auditor’s independent tests of accounting procedures or controls thatwere originally done.
ObservationObservation
It is the use of the senses to assess activities.
The auditor may tour the plant to obtain a generalimpression of the facilities.
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AUDIT PROCEDURESAUDIT PROCEDURES TimingTiming NatureNature Extent Extent CostCost
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WORKING PAPERSWORKING PAPERS
Functions:Functions:1.1. Assignment and coordinating audit Assignment and coordinating audit
workwork
2.2. Supervising and reviewing the work Supervising and reviewing the work of assistantsof assistants
3.3. Supporting the reportSupporting the report
4.4. Complying with the stds of field Complying with the stds of field work (IIA standards)work (IIA standards)
5.5. Planning and conducting the next Planning and conducting the next auditaudit
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OTHER CONSIDERATIONSOTHER CONSIDERATIONS• Confidential natureConfidential nature• Ownership of working papersOwnership of working papers
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TYPES OF WORKING TYPES OF WORKING PAPERSPAPERS
Administrative working papersAdministrative working papers• Audit planAudit plan• Time budgetTime budget• Internal control documentationInternal control documentation
Working trial balanceWorking trial balance Lead schedulesLead schedules Adjusting journal entriesAdjusting journal entries
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Types of Working PapersTypes of Working Papers Supporting schedulesSupporting schedules Analysis of a ledger accountAnalysis of a ledger account Corroborating documentsCorroborating documents
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ORGANIZATIONORGANIZATION Current files – one file per year Current files – one file per year Permanent file – preserves working papers Permanent file – preserves working papers
that show relatively few or no changesthat show relatively few or no changes• LeasesLeases• Pension plansPension plans• Labor contractsLabor contracts• Formal agreementsFormal agreements