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CHAPTER 6 AUDIT PROCEDURES, AUDIT EVIDENCE, AND WORKING PAPERS Fall 2007

CHAPTER 6 AUDIT PROCEDURES, AUDIT EVIDENCE, AND WORKING PAPERS Fall 2007. Procedures to gather evidence Defining audit evidence Competence of audit evidence Working Papers. Transaction Objectives Occurrence Completeness Cutoff Accuracy Classification Balance Objectives Existence

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CHAPTER 6 AUDIT PROCEDURES, AUDIT EVIDENCE, AND WORKING PAPERS Fall 2007

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  1. CHAPTER 6AUDIT PROCEDURES, AUDIT EVIDENCE, AND WORKING PAPERSFall 2007 • Procedures to gather evidence • Defining audit evidence • Competence of audit evidence • Working Papers

  2. Transaction Objectives Occurrence Completeness Cutoff Accuracy Classification Balance Objectives Existence Completeness Rights & Obligations Valuation & Allocation Disclosure Objectives Occurrence and Rights & Obligations Completeness Classification & Understandability Accuracy & Valuation Audit Objectives

  3. Nature of Audit Tests • Procedures to Obtain Understanding • Tests of Controls • Substantive Tests • Analytical Procedures • Tests of Details of Transactions and Balances • Tests of Estimates • Tests of Disclosures

  4. How Do We Perform Tests? We use various audit procedures: 1.Inspection of documents & records 2. Inspection of tangible assets 3. Observation (process or procedure) 4. Inquiry 5. Confirmation 6. Recalculation 7. Reperformance 8. Analytical Procedure 9. Computer-assisted audit techniques

  5. Inspection of Documents & Records: Vouching and Tracing

  6. Computer-Assisted Audit Techniques (CAATs) Generalized Audit Software Examples 1. Perform the calculations for analytical procedures. 2. Select a sample of A/R for confirmation. 3. Verify completeness of prenumbered sequences 4. Compare data elements in different files for agreement. 5. Reperform calculations and math accuracy in client accounting records

  7. Audit Evidence Procedures yield evidence supporting objectives Examples: • Client accounting records • Supporting documentation for entries • Third party confirmations • Information from client personnel • Observation of client personnel • Auditor logic Not all evidence is created equal!

  8. Audit Evidence Evidence must be competent • Relevant and • Reliable Evidence must be sufficient

  9. Effects of Circulation on Reliability of Documentary EvidenceFigure 6-5

  10. How is all this work documented? SAS 41 describes working papersas the records kept by the auditor of: 1. the procedures applied, 2. the tests performed, 3. the information obtained, and 4. the pertinent conclusions reached in the audit.

  11. Working Papers Working papers provide: 1. The principal support for the auditor’s report. 2. A means for coordinating and supervising the audit. 3. Evidence that the audit was made in accordance with GAAS. - the procedures applied - the tests performed - the information obtained - the pertinent conclusions reached

  12. Integrated Working Papers for CashFigure 6-11

  13. Preparing Working Papers The following essential techniques of good working paper preparation should always be observed: • Heading • Index number • Cross-referencing • Tick marks • Signatures & dates

  14. Documenting Proposed Changes to F/S Auditors propose changes to mgmt’s f/s • What are the reasons for these changes? • Types • Adjustments • Reclassifying entries: f/s presentation only • Are all the proposed changes booked by mgmt? • What determines whether the auditor requires the changes?

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