Assertions - Planning - Evidence & Documentation

Question 1

What CAS standard provides support for audit evidence

Answer 1

CAS 500 - Audit evidence is used to support the auditor’s opinion & audit report
- Design - performing audit procedures to gather SAAE to draw a reasonable conclusion on the audit opinion

Question 2

What are the two types of audit evidence requirement

Answer 2

Evidence requirement:
1. Sufficiency - Measure the quantity of audit evidence obtained and affected by RMM in the assessment
- Higher risk, more audit evidence to be obtained, require professional judgment

2. Appropriateness - Measure the quality of audit evidence obtained
   Two types of appropriateness
3. Relevance - Connection between the audit evidence being obtained and the assertion tested
4. Reliability - The information gathered can be used as audit evidence. Audit evidence itself can be relied on.

Question 3

What are the three aspects of persuasiveness audit evidence

Answer 3

• Auditors are required to obtain reasonable, not absolute assurance in F/S to be free from material misstatement
• Audit evidence occurs partly because the auditor will perform audit sampling

3 Types:
1. Internally generated - least persuasiveness, easy to manipulate
2. Externally generated, but held by the client - Created by a third party, reliable but still can be tapered
3. Externally generated - Obtain directly from third party - most reliable

Question 4

Explain the types of audit evidence

Answer 4

1. Physical evidence - Result of physically examining a tangible asset
2. Confirmation evidence - Obtaining written communication from third party
3. Documentary evidence - Inspecting the client’s internal or external documents and records that can be both physical and electronic
4. Analytical evidence - performing ratio analysis on the client balance sheet
5. Verbal evidence - Inquiry to ask questions on management and hold a discussion
6. Computational evidence - Using validated input to recalculate items in F/S

Question 5

What are the gathering techniques

Answer 5

1. Confirmation
2. Inspection
3. Inquiry
4. Reperformance
5. Observation
6. Analytical procedures
7. Recalculation

Question 6

What are the three main types of ADA use

Answer 6

1. Descriptive ADA - using ADA to determine what happened, to determine salaries and benefits paid in each pay period of the year
2. Predictive ADA - using ADA to predict what might happen in the future. Using salaries and benefits data from one year to determine how costs might increase or decrease
3. Diagnostic ADA - Using ADA to diagnose why something happens, such as analysis to determine why salaries and benefits were high for the month of August in the current year

Question 7

What do we need to understand about documentation and the types

Answer 7

• Documentation is needed to help assist the audit team in performing their work, accountability, and provide a conclusion
• Should be well organized, cross reference, clear and concise
  Types of documentation
• Minutes of planning discussion
• Letter and agreement
• Audit strategy and plan
• Spreadsheet containing analytics
• Audit findings and conclusion