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    The document discusses audit evidence and audit documentation. It identifies four audit evidence decisions needed to create an audit program, and eight types of evidence used in auditing. It also describes the characteristics that determine the persuasiveness of evidence and how technology affects audit evidence and documentation.

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    Arens14e ch07 PPT

    Uploaded by

    Megawati Mediyani
    45 views43 pages
    The document discusses audit evidence and audit documentation. It identifies four audit evidence decisions needed to create an audit program, and eight types of evidence used in auditing. It also describes the characteristics that determine the persuasiveness of evidence and how technology affects audit evidence and documentation.

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    The document discusses audit evidence and audit documentation. It identifies four audit evidence decisions needed to create an audit program, and eight types of evidence used in auditing. It also describes the characteristics that determine the persuasiveness of evidence and how technology affects audit evidence and documentation.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    45 views43 pages

    Arens14e ch07 PPT

    Uploaded by

    Megawati Mediyani
    The document discusses audit evidence and audit documentation. It identifies four audit evidence decisions needed to create an audit program, and eight types of evidence used in auditing. It also describes the characteristics that determine the persuasiveness of evidence and how technology affects audit evidence and documentation.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 43

    Audit Evidence

    Chapter 7

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    57
    - 5- 1

    Learning Objective 1
    Contrast audit evidence with evidence
    used by other professions.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7-2

    Nature of Evidence
    Any information used by the auditor to
    determine whether the information being
    audited is stated in accordance with
    established criteria

    The use of evidence is not unique to auditors


    Evidence is also used by scientists, lawyers,
    and historians
    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7-3

    Nature of Evidence

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7-4

    Learning Objective 2
    Identify the four audit evidence
    decisions that are needed to create
    an audit program.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7-5

    Audit 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)

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7-6

    Audit Program
    It includes a list of the audit procedures
    the auditor considers necessary.

    Sample sizes
    Items to select
    Timing of the tests

    Most auditors use audit software


    packages to generate audit programs.
    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7-7

    Learning Objective 3
    Specify the characteristics that
    determine the persuasiveness of
    evidence.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7-8

    Persuasiveness of Evidence
    Two determinants:

    Appropriateness

    Sufficiency

    The persuasiveness of evidence can be evaluated only after


    considering the combination of appropriateness and sufficiency
    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7-9

    Six Characteristics of
    Reliable Evidence
    1. Independence of provider
    2. Effectiveness of clients
    internal controls
    3. Auditors direct knowledge
    4. Qualification of individuals
    providing the information
    5. Degree of objectivity
    6. Timeliness

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 10

    Relationships Among Audit


    Evidence and
    Persuasiveness
    Qualities Affecting Persuasiveness
    Audit Evidence Decisions

    of Evidence

    Audit procedures and timing

    Appropriateness
    Relevance
    Reliability
    Independence of provider
    Effectiveness of internal controls
    Auditor's direct knowledge
    Qualifications of provider
    Objectivity of evidence
    Timeliness
    When procedures are performed
    Portion of period being audited

    Sample size and items to select Sufficiency

    Adequate sample size


    Selection of proper population items

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 11

    Persuasiveness and Cost


    In making decisions about evidence
    for a given audit, both persuasiveness
    and cost must be considered.
    The auditors goal is to obtain a
    sufficient amount of appropriate
    evidence at the lowest total cost.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 12

    Learning Objective 4
    Identify and apply the eight types of
    evidence used in auditing.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 13

    Types of Audit Evidence


    Physical
    Examination
    Observation

    Reperformance

    Audit
    Evidence

    Confirmation

    Documentation

    Analytical
    procedures
    Recalculation

    Inquiry

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 14

    Relationships

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 15

    Physical Examination
    It is the inspection or count by the
    auditor of a tangible asset.
    This type of evidence is most often
    associated with inventory and cash.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 16

    Confirmations
    Auditing Standards

    Requirements

    United States

    Auditor must confirm


    accounts receivable
    Auditors control the mailing
    and receipt of replies
    Electronic confirmations
    are permitted

    International

    Confirmations are not require

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 17

    Information often Confirmed

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 18

    Documentation
    It is the auditors inspection of the
    clients documents and records.

    Internal
    documents

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    External
    documents

    7 - 19

    Analytical Procedures

    Understand the clients industry and business


    Assess the entitys ability to continue as a
    going concern
    Indicate the presence of possible misstatemen
    in the financial statements
    Reduce detailed audit tests

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 20

    Inquiries of the Client


    It is the obtaining of written or oral
    information from the client in response to
    questions from the auditor.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 21

    Recalculation

    It involves rechecking a sample of calculations


    made by the client.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 22

    Reperformance
    It is the auditors independent tests of client
    accounting procedures or controls that
    were originally done.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 23

    Observation
    Use ones senses to assess
    client activities.
    Tour plant to obtain a general
    impression of clients facilities.
    Observation is rarely sufficient
    by itself.
    Often need to corroborate
    with another kind of evidence.
    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 24

    Appropriateness of Types of
    Evidence

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 25

    Application of Types of
    evidence to the four
    Evidence Decisions

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 26

    Terms and Types of


    Evidence
    Terms

    Type of Evidence

    Examine
    Scan
    Read
    Compute
    Recompute
    Foot
    Trace
    Compare
    Count
    Observe
    Inquire
    Vouch

    Documentation
    Analytical procedures
    Documentation
    Analytical procedures
    Recalculation
    Recalculation
    Documentation/Reperformance
    Documentation
    Physical examination
    Observation
    Inquiries of client
    Documentation

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 27

    Learning Objective 5
    Understand the purposes of audit
    documentation.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 28

    Audit Documentation

    Audit documentation is the principal record


    of auditing procedures applied, evidence
    obtained, and conclusions reached by
    the auditor in the engagement.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 29

    Audit Documentation
    Purposes of audit documentation
    Ownership of audit files
    Confidentiality of audit files

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 30

    Sarbanes-Oxley Act
    The Sarbanes-Oxley Act requires auditors of
    public companies to prepare and maintain
    audit working papers for a period of no
    less than seven years.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 31

    Learning Objective 6
    Prepare organized audit
    documentation.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 32

    Audit File Contents and


    Organization

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 33

    Permanent Files
    These files are intended to contain
    data of a historical or continuing
    nature pertinent to the current audit.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 34

    Current Files
    Audit program
    General information
    Working trial balance
    Adjusting and reclassification entries
    Supporting schedules
    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 35

    Relationship of Audit
    Documentation
    to Financial Statements

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 36

    Types of Supporting
    Schedules
    Analysis
    Trial balance or list
    Reconciliation of amounts
    Tests of reasonableness

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 37

    Types of Supporting
    Schedules
    Summary of procedures
    Examination of supporting documents
    Informational
    Outside documentation

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 38

    Preparation of Audit
    Documentation
    Proper identification of each file
    Files indexed and cross-referenced
    Clear indication of work performed
    Include sufficient information
    State conclusions reached
    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 39

    Preparation of Audit
    Documentation

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 40

    Learning Objective 7
    Describe how technology affects audit
    evidence and audit documentation.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 41

    Effect of Technology

    Audit evidence is increasingly in electronic form

    Auditors must evaluate how electronic informa


    affects their ability to gather evidence
    Auditors use computers to read and examine
    evidence

    Software programs are typically Windows-base


    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    7 - 42

    End of Chapter 7

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    57- -543

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