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AUDIT EVIDENCE and AUDIT PROGRAMS

AUDIT EVIDENCE and AUDIT PROGRAMS. Evidence.

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AUDIT EVIDENCE and AUDIT PROGRAMS

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  1. AUDIT EVIDENCE and AUDIT PROGRAMS

  2. Evidence “They who shall accuse their wives of adultery, and shall have no witnesses thereof besides themselves, the testimony which shall be required by one of them shall be that he swear four times by God that he speaketh the truth, and the fifth time that he imprecate the curse of God on him if he be a liar. And it shall avert the punishment from the wife if she swear four times by God that he is a liar, and if the fifth time she imprecate the wrath of God on her if he speaketh the truth” -The Koran, XXIV, 625

  3. Evidence • “One eye-witness is worth more than ten who tell what they have heard” • Plautus, 190 B.C. • “When one’s proofs are aptly chosen four are as valid as four dozen” • Matthew Prior: Alma, I, 1716 • “It depends on what the meaning of ‘is’ is and what you mean by ‘alone’ ” - Bill Clinton, Aug.17, 1998

  4. Audit Objectives • Audit of the “system” • Understand the business & industry, & assess audit risk • Competition, demand, related parties • Understand the internal control system • test controls • identify potential misstatements • assess risk of material misstatements • design substantive tests

  5. Audit Objectives • Audit of Transactions & Balances- Substantive testing of management’s assertions • Existence or Occurrence • Completeness • Rights & Obligations • Valuation & Allocation • Presentation & Disclosure

  6. Characteristics of Audit Evidence • Factual: Direct • Inferential: Indirect • Underlying Accounting Data: Original entry books & ledgers, work papers • Corroborating Information: Source documents & auditor developed information • Sufficiency: “Enough”, based on Materiality & the quality of Internal Controls • Competence: Valid & Relevant • source: direct/indirect, control quality • related to audit objective

  7. Types of Audit Evidence • Physical- inventory, cash • Confirmation- accounts receivable • Documentary- accounting records & corroborating information • Mathematical- allocations, accruals, & reconciliations

  8. Types of Audit Evidence • Analytical- studying & comparing relationships, between & within periods • trends (horizontal/vertical) & ratios • budgets, performance reports, & variance analysis • industry norms • Hearsay/Oral

  9. Collecting Audit Evidence • Audit Program- Outline of audit procedures to be followed, usually for a transaction cycle • Expenditure • Revenue • Financing & Investing • Programs based upon • Internal control evaluation • Assessment of materiality • Nature of client • Cost/Benefit

  10. Documenting Audit Evidence • Audit Workpapers • Permanent File: reviewed & updated annually • articles of incorporation • contracts & leases • board of director meeting minutes • Current File: supporting current transactions /balances • Working trial balance (p.128) • Lead schedules (p. 129) • Supporting schedules (p. 130) • Adjustments & reclassifications (p. 131)

  11. Word of the Day “QUOTIDIAN” Adj. - everyday, commonplace - recurring daily

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