Assertions & Audit Evidence

Question 1

What are the five financial statement assertions?

Answer 1

1. Existence (occurrence)
2. Completeness
3. Valuation (allocation)
4. Rights and Obligations
5. Presentation and Disclosure

Question 2

How does the direction of testing differ when testing existence versus completeness.

Answer 2

Existence: Test from the accounting records to the supporting evidence.

Completeness: Test from the physical items or the supporting documents to the accounting records.

Question 3

What are the seven types of audit evidence?

Answer 3

1. Physical examination
2. Confirmation
3. Inspection of documents
4. Observation
5. Inquiry
6. Recalculation
7. Analytical procedures

Question 4

What factors influence the reliability of documentary evidence?

Answer 4

External documents are generally more reliable than internal documents.

The reliability of internal documents depends on the strength of internal controls

Question 5

How can an auditor improve the reliability of evidence obtained through inquiry?

Answer 5

1. Ask more than one person
2. Ask client personnel outside of accounting
3. Avoid leading questions