Modern Auditing:Modern Auditing:Assurance Services and the Assurance Services and the

Integrity of Financial Reporting, 8Integrity of Financial Reporting, 8thth EditionEdition

Modern Auditing:Modern Auditing:Assurance Services and the Assurance Services and the

Integrity of Financial Reporting, 8Integrity of Financial Reporting, 8thth EditionEdition

William C. BoyntonWilliam C. BoyntonCalifornia Polytechnic State California Polytechnic State

University at San Luis ObispoUniversity at San Luis Obispo

Raymond N. Raymond N. JohnsonJohnson

Portland State UniversityPortland State University

Chapter 6 – Audit Evidence

Chapter 6 OverviewChapter 6 OverviewChapter 6 OverviewChapter 6 Overview

Audit Evidence DefinedAudit Evidence DefinedAudit Evidence DefinedAudit Evidence Defined

• Audit Evidence– Accounting records – Corroborating information

• Accounting Records

• Other Information

Assertions and Specific Audit Assertions and Specific Audit ObjectivesObjectives

Assertions and Specific Audit Assertions and Specific Audit ObjectivesObjectives

• Five Management Assertions (GAAS)– Existence and Occurrence

– Completeness

– Rights and Obligations

– Valuation or Allocation

– Presentation and Disclosure

Assertions and Specific Audit Assertions and Specific Audit ObjectivesObjectives

Assertions and Specific Audit Assertions and Specific Audit ObjectivesObjectives

• Transaction Class Audit Objectives– Occurrence

– Completeness

– Accuracy

– Cutoff

– Classification

Assertions and Specific Audit Assertions and Specific Audit ObjectivesObjectives

Assertions and Specific Audit Assertions and Specific Audit ObjectivesObjectives

• Account Balance Audit Objectives– Existence

– Completeness

– Rights and Obligations

– Valuation and Allocation

Assertions and Specific Audit Assertions and Specific Audit ObjectivesObjectives

Assertions and Specific Audit Assertions and Specific Audit ObjectivesObjectives

• Disclosure Audit Objectives– Occurrence and Rights and

Obligations

– Completeness

– Understandability

– Accuracy and Valuation

Sufficiency of Audit Sufficiency of Audit EvidenceEvidence

Sufficiency of Audit Sufficiency of Audit EvidenceEvidence

• Materiality

• Risk of Material Misstatement

• Size of Population

• Characteristics of Population

Sufficiency of Audit Sufficiency of Audit EvidenceEvidence

Sufficiency of Audit Sufficiency of Audit EvidenceEvidence

Competency of EvidenceCompetency of EvidenceCompetency of EvidenceCompetency of Evidence

• Relevance of Audit Evidence

• Reliability of Audit Evidence

• Professional Judgment

Reliability of Audit Reliability of Audit EvidenceEvidence

Reliability of Audit Reliability of Audit EvidenceEvidence

Reliability of Documentary Reliability of Documentary EvidenceEvidence

Reliability of Documentary Reliability of Documentary EvidenceEvidence

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1. Which of the following is not a transaction class audit objective?

A. ExistenceB. OccurrenceC. AccuracyD. Cutoff

A. Existence

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2. Which of the following is not an account balance audit objective?

A. ExistenceB. CompletenessC. ClassificationD. Rights and Obligations

C. Classification

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3. All of the following affect the sufficiency of audit evidence except:

A. MaterialityB. Risk of Material MisstatementC. Relevance of Audit EvidenceD. Size and Characteristics of the

Population

C. Relevance of Audit Evidence

Objectives of Audit ProceduresObjectives of Audit ProceduresObjectives of Audit ProceduresObjectives of Audit Procedures

• Obtain an understanding of the entity and its environment

• Test operating effectiveness of controls

• Support assertion or detect material misstatements

Types of Audit ProceduresTypes of Audit ProceduresTypes of Audit ProceduresTypes of Audit Procedures

• Inspection of Documents or Records– Vouching – Tracing

Types of Audit ProceduresTypes of Audit ProceduresTypes of Audit ProceduresTypes of Audit Procedures

• Inspection of Tangible Assets

• Observation

• Inquiry

• Confirmation

Types of Audit ProceduresTypes of Audit ProceduresTypes of Audit ProceduresTypes of Audit Procedures

• Recalculation

• Reperformance

• Analytical Procedures

• Computer-Assisted Audit Techniques

Four Decisions About Audit Four Decisions About Audit ProceduresProcedures

Four Decisions About Audit Four Decisions About Audit ProceduresProcedures

• Staffing and Supervising the Audit

• Nature of Audit Procedures

• Timing of Audit Procedures

• Extent of Audit Procedures

Documenting Audit Decisions Documenting Audit Decisions and Audit Evidenceand Audit Evidence

Documenting Audit Decisions Documenting Audit Decisions and Audit Evidenceand Audit Evidence

• Audit Program– Recommended by GAAS– Documents decisions

• Working Papers– Documents audit decisions– Documents audit evidence obtained

Types of Working PapersTypes of Working PapersTypes of Working PapersTypes of Working Papers

• Working Trial Balance

• Schedules and Analyses

• Audit Memoranda and Corroborating Information

• Adjusting and Reclassifying Entries

Preparing Working PapersPreparing Working PapersPreparing Working PapersPreparing Working Papers

• Heading

• Index Number

• Cross-Referencing

• Tick Marks

• Signatures and Dates

Working Paper ExampleWorking Paper ExampleWorking Paper ExampleWorking Paper Example

Reviewing Working PapersReviewing Working PapersReviewing Working PapersReviewing Working Papers

• Scope of Work Performed

• Evidence and Findings Obtained

• Audit Judgment Exercised

• Conclusions Reached by the Auditor

Working Paper FilesWorking Paper FilesWorking Paper FilesWorking Paper Files

• Permanent File

• Current File

• Ownership and Custody

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4. ________ involves selecting entries in the accounting records and inspecting the documentation that served as the basis for the entries.

A. Vouching B. TracingC. ObservationD. Inquiry

A. Vouching

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5. These decisions involve determining whether the procedures will be performed at an interim date or at fiscal year-end.

A. Staffing and SupervisionB. Nature of Audit TestsC. Timing of Audit TestsD. Extent of Audit Tests

C. Timing of Audit Tests

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6. This working paper file contains data that are expected to be useful to the auditor in future engagements with the client.

A. Permanent fileB. Current fileC. Daily fileD. Annual file

A. Permanent file