Chapter 3: Section 2

Question 1

What does ISA 500 Audit Evidence Para 6 say?

Answer 1

‘The auditor shall design and perform audit procedures in the circumstances for the purpose of obtaining sufficient appropriate audit evidence?

Question 2

What 2 things must audit evidence be?

Answer 2

Sufficient (enough of)
Appropriate (the right kind of)

Question 3

To determine appropriateness of audit evidence, what 2 things should be checked?

Answer 3

Relevance and reliability

Question 4

What is relevant evidence judged as?

Answer 4

The right kind if it helps to prove a specific characteristic that a balance or transaction should possess

Question 5

What does reliable evidence consider?

Answer 5

The source of the evidence and ensures it adds credibility to the overall audit process

Question 6

Is sufficiency subjective (opinion) or objective (fact) and what is it based on?

Answer 6

Subjective and based on auditor’s professional judgements

Question 7

What is used to make sure audit evidence is sufficient?

Answer 7

Results of systems testing and assessments of risk and materiality are used - additional procedures can be carried out if the auditor feels there is not enough evidence to form a valid conclusion

Question 8

What are the 5 generalisations about the reliability of evidence?

Answer 8

1. More reliable when obtained from independent sources outside the entity
2. If internally generated, is more reliable if related controls are strong
3. If obtained directly by the auditor (rather than indirectly or by interference) then it is more reliable
4. More reliable when in documentary form (rather than oral)
5. More reliable when documents are originals, not photocopies or facsimiles

Question 9

What are assertions?

Answer 9

Characteristics that all items within the financial statements (including disclosure notes) should possess in order to ‘belong’ there

Question 10

What must all elements of FS (assets, liabilities, income, expenditure and all associated disclosures) do in order to belong there?

Answer 10

Each part of FS has to possess some specific characteristics ( a little like membership requirements for a specific club or society)

Question 11

How does the auditor make sure if something has been included in the fs it should be there?

Answer 11

To establish this, seeks evidence that is relevant to confirming the element does possess those characteristics required in order to belong

Question 12

What are the characteristics required to belong to fs referred to as?

Answer 12

Assertions

Question 13

What are the 2 categories of assertions?

Answer 13

1. Assertions about classes of transactions and events and related disclosures
2. Assertions about accounts balances and related disclosures at the period end

Question 14

What are the 6 assertions under the category of ‘assertions about classes of transactions and events and related disclosures’?

Answer 14

1. Occurrence
2. Completeness
3. Accuracy
4. Cut-off
5. Classification
6. Presentation

Question 15

What does the assertion of occurrence mean?

Answer 15

Transactions and events that have been recorded or disclosed have occurred and pertain to the entity

Question 16

What does the assertion of completeness mean under the first category?

Answer 16

All transactions and events hat should have been recorded have been recorded and all related disclosures that should have been included in the financial statements have been included

Question 17

What does the assertion of accuracy mean until the first category?

Answer 17

Amounts and other data relating to recorded transactions and events have been recorded appropriately, and related disclosures have been appropriately measured and described

Question 18

What does the assertion of cut-off mean?

Answer 18

Transactions and events have been recorded in the correct accounting period

Question 19

What does the assertion of classification mean under the first category?

Answer 19

Transactions and events have been recorded in the proper accounts

Question 20

What does the assertion of presentation mean under the first category?

Answer 20

Transactions and events are appropriately aggregated or disaggregated and are clearly described, and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework

Question 21

What are the 6 assertions under category 2 (Assertions about account balances and related disclosures at the period end)?

Answer 21

1. Existence
2. Rights and obligations
3. Completeness
4. Accuracy, valuation and allocation
5. Classification
6. Presentation

Question 22

What does the assertion of existence mean?

Answer 22

Assets, liabilities and equity interests exist

Question 23

What does the assertion of rights and obligations mean?

Answer 23

Entity holds or controls the right to assets, and liabilities are the obligations of the entity

Question 24

What does the assertion of completeness mean under category 2?

Answer 24

All assets, liabilities and equity interests that should have been recorded have been recorded and all related disclosures that should have been included in the financial statements have been included

Question 25

What does the assertion of accuracy, valuation and allocation mean?

Answer 25

Assets, liabs and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded and related disclosures have been appropriately measured and described

Question 26

What does the assertion of classification mean under category 2?

Answer 26

Assets, liabilities and equity interests have been recorded in the proper accounts

Question 27

What does the assertion of presentation mean in category 2?

Answer 27

Assets, liabilities and equity instruments are appropriately aggregated or disaggregated and are clearly described, and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework

Question 28

What ISA shows the assertions categories and the individual assertions?

Answer 28

ISA 315 (Revised): para. A190

Question 29

What is an important matter to consider when looking at testing?

Answer 29

The 'direction' of a test

Question 30

When devising an audit test what is it useful to think about?

Answer 30

The 2 types of audit evidence available

Question 31

When devising an audit test, it is useful to think about the two types of audit evidence available. What are these?

Answer 31

1. Source documents 2. Financial records

Question 32

What are source documents as a form of audit evidence?

Answer 32

Include physical assets (such as an item of inventory or a non-current asset) and documents (ie invoices, contracts, goods despatched notes, goods received notes and timesheets)

Question 33

What are financial records as a form of audit evidence?

Answer 33

These include the financial statements and other records which are agreed to the financial statements (ie cash books, ledgers and non-current asset registers)

Question 34

If we start testing at a source document, what must we then do?

Answer 34

Agree the source document to the financial records

Question 35

If auditors are starting testing with financial records, what must we do?

Answer 35

Trace back to source documents - to ensure the item existed in the first place

Question 36

When must auditors start the test at a source document?

Answer 36

If auditors are testing whether something has been understated in the financial statements (e.g., a liability such as trade payables)

Question 37

When must auditors start testing with financial records?

Answer 37

If auditors are testing whether something has been overstated in the financial statements (e.g., nca or sales revenue)

Question 38

Once testing is complete and relevant evidence has been collected what will happen?

Answer 38

As with all other outputs from the audit process, it must be recorded and documented in line with ISA 230 Audit Documentation (paras 2 and 3)