Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University Chapter 6 – Audit Evidence

Chapter 6 Overview

Audit Evidence Defined Audit Evidence – Accounting records – Corroborating information Accounting Records Other Information

Assertions and Specific Audit Objectives Five Management Assertions (GAAS) – Existence and Occurrence – Completeness – Rights and Obligations – Valuation or Allocation – Presentation and Disclosure

Assertions and Specific Audit Objectives Transaction Class Audit Objectives – Occurrence – Completeness – Accuracy – Cutoff – Classification

Assertions and Specific Audit Objectives Account Balance Audit Objectives – Existence – Completeness – Rights and Obligations – Valuation and Allocation

Assertions and Specific Audit Objectives Disclosure Audit Objectives – Occurrence and Rights and Obligations – Completeness – Understandability – Accuracy and Valuation

Sufficiency of Audit Evidence Materiality Risk of Material Misstatement Size of Population Characteristics of Population

Sufficiency of Audit Evidence

Competency of Evidence Relevance of Audit Evidence Reliability of Audit Evidence Professional Judgment

Reliability of Audit Evidence

Reliability of Documentary Evidence

Study Break 1.Which of the following is not a transaction class audit objective? A.Existence B.Occurrence C.Accuracy D.Cutoff A. Existence

Study Break 2. Which of the following is not an account balance audit objective? A.Existence B.Completeness C.Classification D.Rights and Obligations C. Classification

Study Break 3. All of the following affect the sufficiency of audit evidence except: A.Materiality B.Risk of Material Misstatement C.Relevance of Audit Evidence D.Size and Characteristics of the Population C. Relevance of Audit Evidence

Objectives of Audit Procedures Obtain an understanding of the entity and its environment Test operating effectiveness of controls Support assertion or detect material misstatements

Types of Audit Procedures Inspection of Documents or Records – Vouching – Tracing

Types of Audit Procedures Inspection of Tangible Assets Observation Inquiry Confirmation

Types of Audit Procedures Recalculation Reperformance Analytical Procedures Computer-Assisted Audit Techniques

Four Decisions About Audit Procedures Staffing and Supervising the Audit Nature of Audit Procedures Timing of Audit Procedures Extent of Audit Procedures

Documenting Audit Decisions and Audit Evidence Audit Program – Recommended by GAAS – Documents decisions Working Papers – Documents audit decisions – Documents audit evidence obtained

Types of Working Papers Working Trial Balance Schedules and Analyses Audit Memoranda and Corroborating Information Adjusting and Reclassifying Entries

Preparing Working Papers Heading Index Number Cross-Referencing Tick Marks Signatures and Dates

Working Paper Example

Reviewing Working Papers Scope of Work Performed Evidence and Findings Obtained Audit Judgment Exercised Conclusions Reached by the Auditor

Working Paper Files Permanent File Current File Ownership and Custody

Study Break 4. ________ involves selecting entries in the accounting records and inspecting the documentation that served as the basis for the entries. A.Vouching B.Tracing C.Observation D.Inquiry A. Vouching

Study Break 5. These decisions involve determining whether the procedures will be performed at an interim date or at fiscal year-end. A.Staffing and Supervision B.Nature of Audit Tests C.Timing of Audit Tests D.Extent of Audit Tests C. Timing of Audit Tests

Study Break 6. This working paper file contains data that are expected to be useful to the auditor in future engagements with the client. A.Permanent file B.Current file C.Daily file D.Annual file A. Permanent file