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Main Types of Audit Evidence. Advanced Auditing Chapter 7. Dr. Mohamed A. Hamada . Audit evidence are variant of other evidence that used by other professions. Identify the four audit evidence decisions . Explain the persuasive of audit evidence

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main types of audit evidence

Main Types of Audit Evidence

Advanced Auditing

Chapter 7

Dr. Mohamed A. Hamada

learning objectives
Audit evidence are variant of other evidence that used by other professions.

Identify the four audit evidence decisions.

Explain the persuasive of audit evidence

Explain the main types of audit evidence

Learning Objectives
types of audit evidence
Types of Audit Evidence

1. Physical examination

2. Confirmation

3. Documentation

4. Analytical procedures

5. Inquiries of the client

6. Re-calculation

7. Re-performance

8. Observation

physical examination
Physical Examination

It is the inspection or count by the

auditor of a tangible asset.

This type of evidence is most often

associated with inventory and cash.

Physical examination is a direct means of verifying that an asset actually exists

confirmation
Confirmation
  • Confirmation describes the receipt of a direct written response from a third party verifying the accuracy of information that was requested by the auditor.
  • Because confirmations come from sources independent of the client, they are a highly regarded and often-used type of evidence
slide6

Canada 46

  • Confirmation - receipt of a written or oral response from an independentthird party at the auditor’s request.
  • A sample of accounts receivable should be confirmed by the auditor.

auditor

client’s customer

very appropriate evidence!

documentation
Documentation

It is the auditor’s inspection of the

client’s documents and records.

External

documents

Internal

documents

slide8

- Documentation (vouching) - auditor

examination of client documents and

records

the difference between internal and external documents
the difference between internal and external documents?

External documents are usually on the client’s premises but were either prepared by a third party or processed by a third party (more persuasive).

Internal documents have been prepared by the client and have notleft the client’s premises (lesspersuasive).

slide10

the difference between physical

examination and documentation

- Physical examination - inspection or

count by the auditor of a tangible

asset

- Documentation (vouching) - auditor

examination of client documents and

records

example
Example:

the client often retains a customer order, a shipping document, and a duplicate sales invoice for each sales transaction.

These documents are useful evidence for the auditor to verify the accuracy of the client’s records for sales transactions.

analytical procedures
Analytical Procedures

Use comparisons and relationships to assess whether account balances or other data appear reasonable compared to the auditor’s expectations

  • Understand the client’s industry and business
  • Assess the entity’s ability to continue as a going concern
  • Indicate the presence of possible misstatements
  • in the financial statements
  • Reduce detailed audit tests

For example, an auditor may compare the gross margin percent in the current year with the preceding year’s.

types of analytical procedures

How do the

client’s financial ratios

compare with those

of the industry?

Types of Analytical Procedures

- industry comparisons

types of analytical procedures1

Ace

Company

2003

financial

statements

Ace

Company

2004

financial

statements

Types of Analytical Procedures

- comparisons with prior years

Conclusions from a 2-year analysis

types of analytical procedures2
Types of Analytical Procedures

- Comparisons with auditor-determined

expected results, examples:

Accountcan be calculated from

Sales commissions sales

Depreciation expense fixed assets

Interest expense notes/bonds payable

inquiries of the client
Inquiries of the Client

It is the obtaining of written or oral information

from the client in response to questions

from the auditor.

recalculation
Recalculation
  • It involves rechecking a sample of calculations made by the client.
  • Rechecking client calculations consists of testing the client’s arithmetical accuracy and includes such procedures as extending sales invoices and inventory
  • checking the calculation of depreciation expense and prepaid expenses
re performance
Re-performance

Re-performance is the auditor’s independent tests of client accounting procedures or controls that were originally done as part of the entity’s accounting and internal control system.

Ex: the cycle of sales recording process,

procedures of payrolls calculation

observation
Observation

It is the use of the senses to assess client activities.

The auditor may tour the plant to obtain a general

impression of the client’s facilities.

terms and types of evidence
Terms and Types of Evidence

Terms

Type of Evidence

Examine

Scan

Read

Compute

Re-compute

Assess

Trace

Compare

Count

Observe

Inquire

Vouch

Documentation

Analytical procedures

Documentation

Analytical procedures

Recalculation

Recalculation

Documentation/Re-performance

Documentation/Analytical procedures

Physical examination

Observation

Inquiries of client

Documentation

audit documentation
Audit Documentation

Audit documentation is the principal record

of auditing procedures applied, evidence

obtained, and conclusions reached by

the auditor in the engagement.

purposes of audit documentation
Purposes of audit documentation

The overall objective of audit documentation is to aid the auditor in providing reasonable assurance that an adequate audit was conducted in accordance with auditing standards

effect of technology
Effect of Technology
  • Audit evidence is increasingly in electronic form
  • Auditors must evaluate how electronic information
  • affects their ability to gather evidence
  • Auditors use computers to read and examine
  • evidence
  • Software programs are typically Windows-based