1. Edited By: Dr. Elie Menassa 2005 1 - 1 Audit Evidence Chapter 5

2. Edited By: Dr. Elie Menassa 2005 1 - 2 Learning Objective 1 Identify the four audit evidence decisions that are needed to create an audit program.

3. Edited By: Dr. Elie Menassa 2005 1 - 3 Audit Evidence Decisions 1. Which audit procedures to use 2. What sample size to select for a given procedure 3. Which items to select from the population 4. When to perform the procedures

4. Edited By: Dr. Elie Menassa 2005 1 - 4 Audit Program It includes a list of the audit procedures the auditor considers necessary. Most auditors use computers to facilitate the preparation of audit programs.

5. Edited By: Dr. Elie Menassa 2005 1 - 5 Learning Objective 2 Specify the characteristics that determine the persuasiveness of evidence.

6. Edited By: Dr. Elie Menassa 2005 1 - 6 Persuasiveness of Evidence Competence Sufficiency Combined effect Persuasiveness and cost

7. Edited By: Dr. Elie Menassa 2005 1 - 7 Competence Relevance Independence of provider Effectiveness of internal controls Auditor’s direct knowledge Qualifications of individuals Degree of objectivity Timeliness

8. Edited By: Dr. Elie Menassa 2005 1 - 8 Learning Objective 3 Identify and apply the seven types of evidence used in auditing.

9. Edited By: Dr. Elie Menassa 2005 1 - 9 Types of Audit Evidence 1. Physical examination 3. Documentation 5. Inquiries of the client 6. Reperformance 2. Confirmation 4. Analytical procedures 7. Observation

10. Edited By: Dr. Elie Menassa 2005 1 - 10 Relationships Auditing standards Qualifications and conduct Reporting Evidence accumulation Types of evidence Broad guidelines Broad categories

11. Edited By: Dr. Elie Menassa 2005 1 - 11 Relationships Types of evidence Sample size Timing of tests Audit procedures Items to select Specific instructions

12. Edited By: Dr. Elie Menassa 2005 1 - 12 Information Often Confirmed InformationSource Assets Cash in bankBank Accounts receivableCustomer Notes receivableMaker Owned inventory out on consignmentConsignee Inventory held in public warehousesWarehouse Cash surrender value of life insuranceInsurance co.

13. Edited By: Dr. Elie Menassa 2005 1 - 13 Information Often Confirmed InformationSource Liabilities Accounts payableCreditor Notes payableLender Advances from customersCustomer Mortgages payableMortgagor Bonds payableBondholder

14. Edited By: Dr. Elie Menassa 2005 1 - 14 Information Often Confirmed InformationSource Owners’ Equity Shares outstandingRegistrar and transfer agent

15. Edited By: Dr. Elie Menassa 2005 1 - 15 Information Often Confirmed InformationSource Other Information Insurance coverageInsurance company Contingent liabilitiesBank, lender,and client’s counsel Bond indenture agreementsBondholder Collateral held by creditorsCreditor

16. Edited By: Dr. Elie Menassa 2005 1 - 16 Criteria to Determine Competence Type of evidence Independence of provider Effectiveness of client’s internal controls Auditor’s direct knowledge Qualifications of provider Objectivity of evidence

17. Edited By: Dr. Elie Menassa 2005 1 - 17 Terms and Types of Evidence TermsTypes of Evidence ExamineDocumentation ScanAnalytical procedures Read Analytical procedures Documentation Compute RecomputeReperformance FootReperformance

18. Edited By: Dr. Elie Menassa 2005 1 - 18 Terms and Types of Evidence TermsTypes of Evidence TraceDocumentation CompareDocumentation Count Observation Physical examination Observe InquireInquiries of client VouchDocumentation

19. Edited By: Dr. Elie Menassa 2005 1 - 19 Learning Objective 4 Prepare organized audit documentation.

20. Edited By: Dr. Elie Menassa 2005 1 - 20 Audit File Contents and Organization Derrickson Associates Trial Balance 12/31/2003 Cash$165,237 Accounts Receivable 275,050 Prepaid Insurance 37,795 Interest Receivable 20,493 Financial Statements and Audit Report Working Trial Balance Adjusting Journal Entries Contingent Liabilities Operations Liabilities and Equity Assets Analytical Procedures Test of Controls & Substantive TOT Internal Control General Information Audit Programs Permanent Files

21. Edited By: Dr. Elie Menassa 2005 1 - 21 Permanent Files These files are intended to contain data of a historical or continuing nature pertinent to the current audit.

22. Edited By: Dr. Elie Menassa 2005 1 - 22 Current Files Audit program General information Working trial balance Adjusting and reclassification entries Supporting schedules

23. Edited By: Dr. Elie Menassa 2005 1 - 23 Relationship of Audit Documentation to Financial Statements FINANCIAL STATEMENTS Cash122 Acc. …………………. WORKING TRIAL BALANCE Prelim. AIE’s Final Cash212(90)122 AIE’s Expense90 Cash90

24. Edited By: Dr. Elie Menassa 2005 1 - 24 Relationship of Audit Documentation to Financial Statements LEAD SCHEDULE – CASH A-1 Per G/1 AIE’s Final Petty Cash A-2 5 5 Cash in Bank: General A-3186(90) 96 Payroll A-4 21 21 212(90)122

25. Edited By: Dr. Elie Menassa 2005 1 - 25 Relationship of Audit Documentation to Financial Statements A-2 Cash Count Sheet A-3 Bank Reconciliation A-3/1 Confirmation A-3/2 O/S Check List

26. Edited By: Dr. Elie Menassa 2005 1 - 26 Relationship of Audit Documentation to Financial Statements A-4 Bank Reconciliation A-4/1 Confirmation A-4/2 O/S Check List

27. Edited By: Dr. Elie Menassa 2005 1 - 27 Types of Supporting Schedules Analysis Trial balance Reconciliation of amounts Tests of reasonableness Summary of procedures Examination of supporting documents Informational Outside documentation

28. Edited By: Dr. Elie Menassa 2005 1 - 28