Kế toán, kiểm toán - Chapter 5: Audit evidence and documentation

Audit Evidence and DocumentationChapter 5 Management AssertionsExistence or Occurrence--Assets, liabilities, and owners’ equity accounts reflected in the financial statements exist; the recorded transactions have occurred.Completeness--All transactions, assets, liabilities, and elements of owners’ equity that should be presented in the financial statements are included.Rights and Obligations--The client has rights to assets and obligations to pay liabilities that are included in the financial statements.Valuation or Allocation--Assets, liabilities, owners’ equity, revenues, and expenses are presented at amounts that are determined in accordance with generally accepted accounting principles.Presentation and Disclosure--Accounts are described and classified in the financial statements in accordance with generally accepted accounting principles, and all material disclosures are provided.2Audit Risk Risk of Material Risk That the Audit Risk = Misstatement * Auditors Fail to the Misstatement = Inherent Control Detection Risk * Risk * RiskInherent Risk--Risk of a material misstatement occurring in an assertion assuming no related internal controls.Control Risk--Risk that a material misstatement in an assertion will not be prevented or detected on a timely basis by the company’s internal control.Detection Risk--Risk that the auditors’ procedures will lead them to conclude that a material misstatement does not exist in an assertion when in fact such misstatement does exist.3Audit Risk Formula AR = IR * CR * DRAR = Audit riskIR = Inherent riskCR = Control riskDR = Detection risk4Audit Risk5Competence of Evidential MatterTo be competent evidence must be:ValidRelevantPrinciples Independent sources have greater reliability than those within the client organization.Strong internal control increases reliability of evidence created within the client organization.Directly obtained evidence is more reliable than evidence obtained second hand.6Reliability of Certain Types of Audit EvidenceRELIABILITY TYPE EXAMPLE High Physical Inventory Observation Documentary External Cutoff Bank Statement External/Internal Purchase Invoice Internal Sales Invoice Low Client Representations Management Representation Letter 7 Types of EvidenceAccounting information systemDocumentary evidenceThird-party representationsPhysical evidenceComputationsData interrelationshipsClient representations8Audit ProceduresAccounting information systemDocumentary evidenceTracingVouchingInspectionReconciliationsThird-party representations--ConfirmationPhysical examinationComputations—ReperformanceData interrelationships—Analytical proceduresClient representationsInquiriesLetters of representations9Identifying Potential Misstatements10Basic Approaches to Auditing Accounting EstimatesReview and test management’s process for developing the estimate.Independently develop an estimate to compare to management’s estimate.Review subsequent events or transactions bearing on the estimate.11Auditing Fair Values If the item is traded on an organized market, fair value may be obtained from market pricesIf the item does not trade on an organized market determine fair value by:Analyzing to a similar market is possibleUsing a valuation model 12Functions of Audit DocumentationPrimary functions:Support the auditors’ compliance with auditing standardsSupport the auditors’ opinionSecondary functions:Assist continuing and new audit team members in planning and performing the auditServes as a record of matters of continuing audit interestAssists in supervision and review of the auditDemonstrates the accountability of team membersAssists internal reviewers, external peer reviewers, PCAOB inspectors, and successor auditors in performing their roles13Sufficiency of Audit DocumentationAudit documentation should be sufficient to:Enable an experienced auditor to understand the work performed and the significant conclusions reachedIdentify who performed and reviewed the workShow that the accounting agree or reconcile to the financial statementsAudit documentation should include all significant audit findings and the actions taken to address them14Types of Working PapersAudit administrative working papersWorking trial balanceLead schedulesAdjusting journal entries and reclassification entriesSupporting schedulesAnalysis of a ledger accountReconciliationsComputational working papersCorroborating documents15Types of Working FilesCurrent filesPermanent files161718