1. Evidence and Documentation
Chapter 5
Evidence and Documentation
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2. Where We Are ?
Chapter 5
Examining business processes and their related accounts allows the auditor to gather evidence by understanding the processing of related transactions through the information system from their origin to their ultimate disposition in the accounting journals and ledgers.
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3. Audit Process in General
LO# 1
Start
العلاقة بين أدلة المراجعة وتقرير المراجع
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4. Management Assertions
LO# 2
Management Assertions
What is the Management assertions ?
Assertions are expressed or implied representations by management regarding the recognition, measurement, presentation, and disclosure of information in the financial statements and related disclosures.
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5. Management Assertions
LO# 2
Management Assertions
What are the Types of Management assertions ?
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6. Management Assertions
LO# 2
Management Assertions
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7. The Concepts of Audit Evidence
LO# 3
The Concepts of Audit Evidence
What is the relationship between Management assertion and Audit Evidence ?
The assertions collectively provide a road map for the auditor in determining what evidence to collect regarding various transactions, account balances, and required financial statement disclosures.
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8. The Concepts of Audit Evidence
LO# 3
The Concepts of Audit Evidence
What is the Audit Evidence ?
Audit evidence is the information used by the auditor in arriving at the conclusions on which the audit opinion is based, and it includes the information contained in the accounting records underlying the financial statements and other information.
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9. The Concepts of Audit Evidence
LO# 3
The Concepts of Audit Evidence
What is the Audit Evidence ?
The following concepts of audit evidence are important to understanding the conduct of the audit:
The nature of audit evidence.
The sufficiency and appropriateness of audit evidence.
The evaluation of audit evidence.
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10. The Concepts of Audit Evidence
LO# 3
The Concepts of Audit Evidence
What is the Concepts Audit Evidence ?
The nature of audit evidence.
Refers to the form or type of information,
( Traditional Records – Electronic Records )
The sufficiency and appropriateness of audit evidence.
The evaluation of audit evidence.
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11. The Concepts of Audit Evidence
LO# 3
The Concepts of Audit Evidence
What is the Concepts Audit Evidence ?
The nature of audit evidence.
The sufficiency and appropriateness of audit evidence.
Sufficiency is the measure of the quantity of audit evidence. Appropriateness is a measure of the quality of audit evidence.
Evidence is considered appropriate when it provides information that is both relevant and reliable.
The evaluation of audit evidence.
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12. The Concepts of Audit Evidence
LO# 3
The Concepts of Audit Evidence
What is the Concepts Audit Evidence ?
The nature of audit evidence.
The sufficiency and appropriateness of audit evidence.
The evaluation of audit evidence.
The auditor must be capable of assessing when a sufficient amount of appropriate evidence has been obtained in order to determine the fairness of management’s assertions.
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13. Audit Procedures for Obtaining Audit Evidence
LO# 4
Audit Procedures for Obtaining Audit Evidence
Audit procedures are specific acts performed by the auditor to gather evidence about whether specific assertions are being met.
As discussed in Chapter 3, there are three categories of audit procedures. Each serves the following purposes:
1- Risk assessment procedures
2- Test of controls
3- Substantive procedures
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14. LO# 4
Audit Procedures
A set of audit procedures prepared to test assertions for a component of the financial statements is referred to as an audit program.
Audit Program for Accounts Receivable
Management Assertions
Example Audit Procedures
Existence
Confirm accounts receivable.
Rights and obligations
Inquire of management whether receivables have been sold.
Completeness
Agree total of accounts receivable subsidiary ledger to accounts receivable control account.
Valuation or allocation
Test the adequacy of the allowance for doubtful accounts.
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15. Audit Procedures for Obtaining Audit Evidence
LO# 4
Audit Procedures for Obtaining Audit Evidence
The following types of evidence may be gathered during the application of risk assessment procedures, tests of controls, or substantive procedures, depending on the context in which the auditor applies them.
• Inspection of records or documents.
• Inspection of tangible assets.
• Observation.
• Inquiry.
• Confirmation.
• Recalculation.
• Reperformance.
• Analytical procedures.
• Scanning.
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16. Reliability of Types of Evidence
LO# 5
Reliability of Types of Evidence
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17. Audit Testing Hierarchy
LO# 6
Audit Testing Hierarchy
The thought process auditors use in choosing audit tests and in what order.
Figure 5-3 Audit Testing Hierarchy: An Evidence Decision Process for Testing Significant Balances or Classes of Transactions
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18. LO# 7
Audit Documentation
The auditor’s record of the audit procedures performed, evidence obtained, and conclusions reached.
Audit documentation (working papers) has three functions:
1 To provide support for the audit report.
2 To aid in the planning, performance, and supervision of
the audit.
3 To provide basis for quality reviews; to provide evidence
supporting the auditor’s significant conclusions.
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19. Content of Audit Documentation
LO# 8
Content of Audit Documentation
Audit documentation should:
Demonstrate that the underlying accounting
records agreed or reconciled with the financial
statements.
Support the basis for the auditor’s conclusions
concerning each material financial statement
assertion.
Demonstrate how the audit complied with auditing
and related professional practice standards.
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20. Content of Audit Documentation
LO# 8
Content of Audit Documentation
Audit documentation should:
Include a written audit program detailing auditing procedures necessary to accomplish audit objectives.
Enable a knowledgeable and experienced reviewer to:
Understand the nature, timing, extent, and results of audit procedures, evidence obtained, and conclusions reached.
Determine who performed and reviewed the work, as well as the dates of the work and reviews.
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21. Purposes of Analytical Procedures
LO# 9
Purposes of Analytical Procedures
Risk Assessment
Procedures
Used to assist the auditor to better understand the business and to plan the nature, timing, and extent of audit procedures.
Substantive Analytical Procedures
Used to obtain evidential matter about particular assertions related to account balances or classes of transactions.
Final Analytical Procedures
Used as an overall review of the financial information in the final review stage of the audit.
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22. LO# 9
Substantive Analytical Procedures Decision Process Figure 5-7 Overview of the Auditor’s Decision Process for Substantive Analytical Procedures
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23. Financial Ratios Short-term Liquidity Ratios Activity Ratios
LO# 10
Financial Ratios
Short-term Liquidity Ratios
Activity Ratios
Profitability Ratios
Coverage Ratios
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24. End of Chapter 5
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